Supply chains easing
Australia's international trade surplus fell to $8.3 billion in August, but stay tuned, because this one is actually a good news story.
Exports rose by 2.6 per cent, mainly driven by imperiously powerful coal exports after the July floods ebbed away.
But imports rose more quickly, up by 4.5, as supply chain pressures have eased globally.
James Foster explains why this reflects positive news on easing global supply chains here, with goods imports flowing back into the country now, especially for new vehicles.
Services imports have also come rocketing back, all but doubling (+95 per cent) from a year earlier.
Arrivals to recover
In August there were still tends of thousands of travelling Aussies marauding around Europe and spending their dollars elsewhere in the world, tipping the tourism trade services into a marginal deficit.
Even so, provisionally we can expect net arrivals into Australia to be above 80,000 in August, and likely even more as we head into the warmer summer months.
This should move to ease labour force capacity constraints fairly quickly from here.
In August coal exports crushed it to be by far and way the most valuable Australian export.
Indeed, even on a rolling annual basis coal export values have exceeded iron ore exports by free on board value (something you'd never have countenanced a couple of years ago, when everyone was talking about the death of coal!).
This may not persist, and although coal has has an almost unbelievable run, if I was a coal sector investor I'd probably be trimming (i.e. taking) profits from these levels.
Gas exports also power on to all-time highs, as Australia's epic investment in LNG pays off.
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AIG reported in its Performance of Construction Index today that both house and apartment construction fell hugely, and deeply into contraction activity in September.
Source: AIG
Mortgage jail
I attended the PIPA seminar in Melbourne this morning, which featured a panel comprising the respective chairs of PIPA and PICA, as well as the CEO of the Real Estate Institute of Queensland.
I've recently interviewed both Ben Kingsley and Antonia Mercorella on my podcast, coincidentally.
Much of the talk this morning surrounded tax legislation, the significant changes to rental tenancies acts, and other changes to minimum property standards.
I hadn't fully appreciated the breadth of some of the changes for landlords; no wonder there's a shortage of rental property as interest rates and other holding costs have gone up...even as rents rise.
Rents rising
Cameron Kusher of REA Group flagged some of the impacts on rental markets on social media earlier:
Source: REA Group
Mortgage jail
One easy and instant fix, as mentioned before, is for regulation to stop making it so darned difficult for first homebuyers and landlords to borrow funds.
There have been so many moves over the past five years or so to make being a landlord incrementally less attractive, but one of the biggest hurdles at the moment is borrowing.
The 300 basis points lending assessment buffer made perfect sense when it was brought in, in October 2021.
That's because the cash rate target was temporarily cut to 0.10 per cent, there was a borrowing frenzy (sometimes at high multiples of income), and at some point interest rates would obviously need to rise again.
The problem today is that everyone is looking at data based on mortgage applications activity from months ago, while in real time borrowing activity has nosedived.
I understand that there's always a balance to be struck when it comes to regulatory settings and intervention, of course.
But there's no borrowing frenzy today, every single borrower in the market understands that interest rates may still move higher for a while from here, and the RBA has already delivered 250 basis points of tightening since May.
Stress testing for a further 300 basis points of tightening is both unnecessary and counter-productive.
The Bank of England has already moved its stress test back from 3 percentage points to 1 percentage point.
Meanwhile in Australia we still have an enormously and unrealistically high assessment buffer, which is actually now adding to financial stability risks rather than reducing them, by trapping many borrowers in an effective "mortgage jail".
At the seminar this morning we were discussing instances of some existing borrowers being unable to refinance since they're being assessed at rates of up to 9 per cent, which is frankly absurd.
The 300 basis points buffer has more than served its purpose now...time to move on!
