Pete Wargent blogspot


'Must-read, must-follow, one of the best analysts in Australia' - Stephen Koukoulas, ex-Senior Economics Adviser to Prime Minister Gillard.

'One of Australia's brightest financial minds, must-follow for accurate & in-depth analysis' - David Scutt, Markets & Economics Editor, Sydney Morning Herald.

'I've been investing 40 years & still learn new concepts from Pete; one of the best commentators...and not just a theorist!' - Michael Yardney, Amazon #1 bestseller.

Tuesday, 9 August 2022

Consumer confidence plumbs GFC depths

Confidence plunges

ANZ-Roy Morgan sees consumer confidence down another -4.5 per cent, to the lowest level since April 2020. 

The Westpac-MI gauge has consumer confidence is now also at the same levels we saw in the depths of the global financial crisis. 

Partly for this reason, CBA's Gareth Aird sees the cash rate target peaking at around 2.6 per cent, before being dropped to around 2 per cent. 

Source: CBA

Financial markets beg to differ, seeing pressure on labour costs pushing the cash rate target to above 3 per cent by 2023 (a view supported by the data in the NAB Survey up to July). 

Lending buffers

With Australia's 3-year bond yield trading at under 3 per cent, this does call into question whether home loan borrowers still need to be assessed with a 3 percentage points buffer.

The Bank of England has scrapped its 3 percentage points buffer, partly on the basis that the tightening cycle is now well underway. 

Since October 2021, borrowers in Australia have also been assessed with a huge 3 percentage points buffer, but since there is no basically chance of the cash rate target rising by that amount from here, the buffers could/should be reduced from next month (when the cash rate target will be 2.35 per cent) to give more breathing space for refinancing. 

More here (or click on the image below):

Australia's has a 'cliff' of fixed rate borrowers rolling off low mortgage rates over the next 18 months.

Many of these borrowers will face an unexpectedly huge lift in mortgage repayments, and deserve a chance to refinance, instead of being trapped with poor terms with one lender.


{h/t Ben Kingsley, Empower Wealth, PICA Board}

Rents accelerating

Rents up

Rents continue to climb, according to CoreLogic, up another +0.9 per cent for the month of July, and +9.8 per cent for the year.

Source: CoreLogic

Rental tenancy laws and Queensland's landlord taxes are likely to accentuate the rental shortage over the years ahead. 

Even the CBDs are seeing rental vacancy rates normalising now.

Charts for Sydney, Melbourne, and Brisbane respectively are below (via the excellent SQM Research):

Source: SQM Research

PropTrack reports that the housing market downturn is being led by the premium end of the housing market in Sydney (-6.3 per cent for the quarter in the upper quartile) and Melbourne (-4.5 per cent for the upper quartile). 

Source: PropTrack

It was often the more illiquid properties at the top end of the market which outperformed in recent years, so this makes logical sense.


New York Fed 1-year and 3-year consumer inflation expectations fell significantly in July.

Gas prices also fell further, to be almost $1 below their highs, and to sit at the lowest level in 5 months. 

This is good news, which should further ease concerns about higher price expectations becoming baked in.

Sunday, 7 August 2022

No Fed pivot any time soon

Jobs stunner

Whoops, a huge beat on consensus for US nonfarm payrolls!

Economists had expected +250,000 based on the reported consensus, but in July the result was a rip-snorting +528,000 plus further upwards revisions.

Employment has recovered to its pre-pandemic levels, in the greatest comeback since Man United beat Bayern Munich in the dying minutes of the 1999 final.  

The unemployment rate also fell to the lowest level since the onset of the virus at 3½ per cent. 

Average hourly earnings growth, meanwhile, ticked up to 5.2 per cent over the year.

Really, this was a stunning result, and way better than expected.

You can read the detailed analysis from from the king James Foster here

Rug pull

To be blunt this is bad news for stock markets, as the Fed will not be pivoting any time soon, and indeed may well now hike interest rates by 0.75 per cent next time around. 

On the plus side, for the first time in quite a while I've found a European stock I'm keen on buying, though it's probably illegal to blog about it now (I'll have to find a way to discuss indirectly, perhaps).

Friday, 5 August 2022

Property Pulse on ausbiz TV

Property Pulse

I checked with David Scutt from ausbiz TV here to discuss (or click on the image below):

Have a great weekend!

Construction insolvencies at a 7-year high

Builders go bust en masse

There were 446 construction businesses sent into external administration in the June quarter, which was the worst Q2 since 2015.

And the September quarter will likely see over 500 construction businesses go to the wall, Q3 normally being the busiest quarter for insolvencies. 

With interest rates rising, the September quarter looks likely to see a record high number of business failures across the sector. 

Not good, for employment or housing supply. 

Thursday, 4 August 2022

Exports explode as Aussie enjoy European jaunts

Mining boom phase 3

A couple of interesting observations from the latest international trade data.

Firstly, the dollar value of Australia's gas exports ripped to a new record high in June, while coal exports have delivered a vast and unprecedented A$67 billion windfall over the year to date. 

Exports exploded to a record high of $61½ billion in June, and almost A$600 billion over the financial year. 

This is the 3rd phase of Australia's resources boom: the exports super-boom.

And the trade surplus surged to a record high, turning almost vertically to $17.7 billion in the month. 

The value of exports is massively outpacing sluggish imports. 

Aussies travel overseas

There's been a huge surge in outbound travel over recent months, with tens of thousands of Aussies gallivanting currently around Europe.

This is reflected in a trade services deficit. 

Most of these Aussies will be back Down Under for the busy summer, though, I expect.

Meanwhile, the government is simultaneously focussing on reducing the massive backlog of visa applications, including a record high 42,700 students visa applications received in the past month alone. 

In a few months time Australia will probably start to feel rather congested as everything opens up but struggles to cope with the surge in arrivals. 

Crude oil futures down another 4pc

Oil futures slide

A key inflation theme for the next 6 to 9 months is that things will get worse before they get better...but they will get better. 

Crude oil future settled at around $90.60 today, down another 4 per cent, and at the lowest level since February. 

Stockpiles have surged unexpectedly after OPEC+ said it would raise its oil output target by 100,000 barrels per day. 

The recent trends in commodity prices are worth remembering when everyone warns of 'skyrocketing' inflation over the next few months.

Prices are still up over the year, but crude futures have fallen by more than a quarter since March. 

Capital city population grew 2.5m over the past decade

Between the Censuses

Some interesting stats from the past decade, with Australia's capital city population increasing by 2½ million.

Melbourne experienced the greatest increase in its population, at 806,700.

Sydney grew by 650,800, and Brisbane by 421,500.

Source: ABS

Regional Australia grew by 832,000 over the past decade, with key growth hubs including the Gold Coast and Geelong.