Alastair Lias: What’s happening around the traps?

Property Pod

This week I discuss what's happening around the country with property expert Alastair Lias, as well as what's coming next.

Tune in here (or click on the image below):

You can also tune in at Apple podcasts, Spotify, and at other podcast providers.

You can also tune in at Youtube:

Retail sales still high, for now

Record dollar spend

Retail sales defied expectations in rising by 1.3 per cent in July, to a record dollar high of $34.7 billion, seasonally adjusted. 

Data king James Foster with the charts:

This result appears to stand in stark contrast to other indicators, such as consumer sentiment, for example.

There are a couple of factors to take into account.

Firstly, part of the increase is due to price increases, of course, rather than retail volumes.

And secondly, there was a blistering increases in the number of overseas arrivals in July (with a provisional estimate of 1.083 million arrivals, up from 730,000 in June). 

Thus while there was an increase in department store spend and eating out, household goods retail recorded a third decline in four months. 

Source: ABS

A stitch in time

Overall, at first blush this was a surprisingly strong headline result, but there's plenty of evidence around in various surveys that retail spend will moderate in the months ahead.

In the current inflationary environment central banks will likely want to act sooner and more aggressively, erring on the side of hawkishness.

Thus despite many other indicators being in a weakening trend - and taking into account the lag effect from the rate hikes already delivered - the balance of probabilities suggests that next month's interest rate hike will be greater than 25 basis points (i.e. 40 or 50). 

Freight rates collapsing, but...

Freight rates in freefall

Freight rates were down another 6 per cent this week, continuing their multi-month plunge.

You can argue the toss over whether is this a 'good thing' (declining inflation pressures) or a 'bad thing' (a recessionary indicator)...

On the one hand, this suggests that inflation should gradually fall back to earth.

But markets are clearly still worried about energy prices, while the Biden administration doesn't appear to be doing all that much to help.

After the EV tax credits (which increased electronic vehicle prices) and the Inflation Reduction Act (which is inflationary), yesterday came the announcement of a $10,000 student debt forgiveness for those earning under $125,000. 

This controversial $300 billion policy appeared to infuriate almost everyone and almost broke the internet with the range of highly partisan takes.

Taking a step back from the the politics to look at market-based measures of inflation expectations it does look as though the Federal Reserve will have to be more aggressive in fighting inflation. 

10-year Treasury yields were also up. 

Down Under

Back in Australia, the latest wages figures showed very little sign of significant acceleration. 

And the latest PMI figures reported this week see the economy heading towards contractionary territory.

Charts from CBA: 

And, hopefully, there is some easing of price pressures on the way too. 

CBA sees the terminal cash rate for this cycle at 2.60 per cent, with two rate cuts to come in 2023. 

From CBA:

"The PMI data today supports our RBA call.  We see the cash rate target peaking at 2.60% in late 2022 (a level which we consider to be contractionary).  And we have two 25bp rate cuts pencilled in for H2 23.  

We think that provided the RBA pause in their tightening cycle when the cash rate is ~2.60% (close to the 2.5% level the RBA have nominated as their estimate of neutral, which is ~100bp above our assessment of neutral) the data will indicate that there is no need to continue to take the policy rate higher.  Indeed taking the cash rate higher would likely generate a hard landing in the economy."

This is where property buyers are buying the dip

Buying the dip

A bit of a look around the traps at where property buyers are still buying here (or click on the image below):

Calls for APRA to ease lending buffers

Mortgage jail

Topical:

Ben Kingsley: This is why APRA needs to ease lending buffers

Lending standards

This week on the Property Pod I spoked to PICA Chair and founder of Empower Wealth Ben Kingsley.

An expert in the lending and policy space, Ben discusses recent changes to APRA's lending assessment buffer policies, reforms to tenancy laws, and Queensland's latest land tax proposals.

Tune in here (or click on the image below):

You can also tune in at Apple Podcasts, Spotify...and Youtube. 

Is there a 'buy the dip' moment coming for property? (Livewire)

 Livewire markets

A bit of a Q&A with the guys at Livewire markets here (or click on the image below):

Employment falls 41k; earnings are...rubbish

Employment falls 41k

Employment fell sharply by -40,900 last month, missing market expectations significantly, and another signal that the economy is beginning to roll over. 

There were some big swings in the sample rotation figures, and there will be another significant change next month, so there's clearly some volatility in the monthly numbers to be taken into account.

The employment declines were experienced across each of the three most populous states, although New South Wales still has growth in total employed persons of +144,000 over the past year, and quarterly employment growth remained positive on a national basis. 

Big drop in participation

The participation rate suddenly dropped in July from 66.8 per cent to 66.4 per cent. 

I'm not going to pretend to understand such a sharp move in a single month, except to acknowledge that school holidays (and now the ability to take international holidays) have wreaked a bit of havoc with the payrolls figures of late. 

As an indirect result, the unemployment rate fell to a new cycle low of 3.38 per cent. 

At face value that means there was a marked decline in the number of unemployed persons from 493,900 to 473,600, meaning in turn that there are apparently more jobs vacancies (480,000 in May) than unemployed persons.

I could be off track, but it appears to me that the number of persons available for work is now set to increase quite dramatically as new arrivals surge into the summer months, while the most timely available jobs vacancies data series from ANZ and the Skills Commission are both now falling. 

It had quite reasonably been expected that average weekly ordinary time earnings would accelerate, but...nah, in the event the figures were rubbish. 

Mr. Macro at the carpet store underscores the dichotomy.

The wrap

Overall, this week's data dump has broadly suggested that the central bank should cool the proverbial jets, with weak wages and average hourly earnings figures, a huge surge in overseas arrivals, and a big monthly drop in total employment. 

Yes, this is only one month of job declines, but the economy is going to need to generate consistent jobs growth as labour supply returns. 

There may yet be a case for a 40 basis points interest rate hike next month, roughly splitting market pricing and bringing the cash rate target to a 'neater' round figure of 2.25 per cent. 

Whatever, we appear to have moved one step closer to the pause. 

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You can read the detailed analysis of the release with James Foster here.