Real-time thoughts & analysis of the markets, economy & more...
Co-founder & CEO of AllenWargent property market & hedge fund advisory.
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Pete Wargent blogspot
Co-founder & CEO of AllenWargent property advisory, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds, & private investors.
4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.
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Saturday, 26 October 2013
The week that was...
Another busy week in Australian finance and investment markets, briefly summarised below.
As the US debt ceiling again loses its hard edge and recedes into the rear view mirror (for now at least) the share markets are off and running again, capturing new five year highs.
However, the XJO has yet to crack the psychological 5,400 barrier which could then see the market heading back towards its record highs of before the global financial crisis.
In the property markets, we are starting to see it reported fairly widely that the housing recovery is largely a Sydney-centric phenomenon, which has been a primary theme and prediction of this blog over the last 12-18 months.
Although RP Data is set to record price gains Australia-wide of over 1% again in October, in truth the figure is largely driven by the heavy weighting of the Sydney property market, which has added another 2.4% in October alone.
Sydney dwelling prices have increased by 12.7% in 2013 to date (as compared to, say, 0.8% in Adelaide, and relatively soft figures in certain other locations).
The CPI print this week at a headline rate of 1.2% for the quarter showed that there are some signs of inflation around, although on an annual basis the favoured trimmed and weighted measurements remain comfortably within the 2-3% range.
Despite sporadic reports of that elusive 'confidence' picking up around the country, there is clearly still much work to be done.
Property prices are on the up, but it's predominantly a Sydney thing. Dwelling construction is really starting to take off in Sydney, but elsewhere progress is demonstrably slower. Business confidence keeps threatening to take off without really ever delivering to date.
The Reserve Bank's (RBA) Deputy Governor Philip Lowe delivered this speech this week to the Australian Investment Conference, in which he highlighted the forthcoming drop-off in mining capital investment, which the RBA hopes will be offset by a boom in dwelling construction.
Lowe variously discussed non-mining investment, household debt, business confidence, the weaker Aussie dollar and consumption growth and - crucially, for my money - concluded:
"Together, a lower value of the Australian dollar, an improvement in business confidence and low interest rates provide the basis for our outlook of a gradual lift in the non-mining economy over the next couple of years."
The RBA appears to view the housing market rebound as a favourable development (while it will be keeping a close eye on speculative behaviour Sydney where according to figures released by APRA for the June 2013 quarter much of the price action is clearly being driven by investors using interest only loans) and has a far lower level of concern about household debt than many seem to believe.
Note, therefore, that we might reasonably expect to see low interest rates for perhaps as long as the next couple of years in order to encourage a boost to non-mining investment. The futures markets get this and anticipate the very same, with the futures market yield curve implying that the cash rate could remain below 3.00% well into 2015.