A consistent downturn

Delivered on By Justin Pyvis

Good morning! Australia and India signed a trade agreement on Friday that will eliminate tariffs on more than 85% of Australian exports to India – currently $A12.6 billion a year, or <3% of Australia’s total exports – with 96% of Indian goods entering Australia to be duty-free.

Diversification in the post-pandemic era will mean signing as many trade agreements as possible with countries not called China.


Reading the tea leaves

Daily % change

AUD/USD

74.9

0.0%

AUD/CNY

4.77

+0.6%

AU Bond

2.85

+1.7%

US Bond

2.38

+2.1%

ASX200

7,494

-0.1%

S&P500

4,546

+0.3%

Brent (bbl)

104.4

-3.1%

Gold (oz)

1,924

+0.3%

Iron ore (t)

160.6

+0.6%

Bitcoin

46,441

+1.2%

Ethereum

3,493

+1.4%

Note: Brent oil, gold bullion and iron ore prices are the second futures contract. Bond yields are 10-year Treasuries.

The US S&P500 gained 0.34% as Friday’s official jobs report showed US unemployment dropping to just 3.6%, lending support for several rate hikes this year to bring inflation back closer to the Fed’s 2% target (currently 7.9%).

The price of Brent crude oil fell again after members of the International Energy Agency (IEA) agreed to join the US in releasing strategic oil reserves, bringing its weekly losses to -13.5%, the sharpest fall in almost two years.

Locally, the ASX200 fell -0.08% on Friday but still managed to gain 1.2% for the week for its third third consecutive weekly increase. The winners were the usual suspects of materials (+1.3%) and energy (+1.2%), while the tech (-0.9%), telco (-1.5%) and consumer discretionary (-1.4%) sectors led the losses.


Food for thought

New housing finance remains nearly 70% above pre-pandemic levels, although appears to have peaked.
New housing finance remains nearly 70% above pre-pandemic levels, although appears to have peaked. Source

Australia’s property market has had quite the ride over the past couple of years, with national house prices up 23.7% over the last twelve months (as at December 2021), and 28.2% since the pandemic started (December 2019 – 2021).

The all-too-familiar supply constraints no doubt played a role but the surge in prices since the pandemic started is all down to demand, fuelled by fiscal (state and federal) stimulus not adequately offset by the Reserve Bank of Australia (RBA).

But the ride might finally be coming to an end, at least until the next panic-induced stimulus. February’s new housing finance data released on Friday showed a decline for the first time since October 2021, and the annual rate of growth has been decelerating since May 2021.

House prices could even start to fall in some areas if the supply stimulated in 2020-21 starts to come online at the same time as demand slows or even declines.

Data from CoreLogic, which are available as soon as the month ends unlike those from the Australian Bureau of Statistics which aren’t released until 74 days after the end of a quarter, showed that prices in Sydney and Melbourne fell by -0.2% and -0.1% in March. According to CoreLogic:

“…we are now seeing those markets either right at the top of their cycle and about to start to move into a consistent downturn, or potentially already moving into a downturn.”

Those data aligned with the brand new PropTrack Home Price Index, which showed that national:

“…home prices increased by 0.34% in March. This is around half the decade-average pace of monthly growth and substantially below the rate of growth this time last year.

Fiscal and monetary stimulus pulled forward an enormous amount of demand for housing. But that effect looks to have peaked at the same time as interest rates start to rise, further sapping demand and straining the budgets of those who took on debt assuming rates would stay on hold until at least 2024, as promised by the RBA.


Chewing the fat


Bits and bytes

🗳️ The latest Newspoll conducted after the recent budget showed Labor’s primary vote falling three points to 38%, while the Coalition gained a point to 36%. The two-party preferred gap is 54-46% in Labor’s favour, having narrowed just 1 point from three weeks ago.

🤥 ScoMo said Australians don’t care if politicians “get the odd fact wrong or figure wrong” (i.e. lie), only “their jobs, national security”.

☢️ Australia’s Defence Department deputy secretary Tony Dalton said the final cost of the aborted French submarine programme would be “within” $A5.5 billion.

🚚 Australia will send armoured Bushmaster vehicles to Ukraine following a request from President Volodymyr Zelensky to the Australian Parliament on Thursday.

🏦 15-year RBA veteran Michele Bullock was promoted to the vacant deputy governor role following Guy Debelle’s departure to Fortescue.

🦗 Australia won the ICC Women’s World Cup, defeating England by 71 runs, set up by a magnificent 170 from opener Alyssa Healy.

📈 Inflation in Poland hit its highest level since 2000 in March (10.9%), while eurozone inflation hit 7.5%, a fresh all-time high.

🐸 The head of France’s military intelligence, General Eric Vidaud, was reportedly fired “after failing to predict Russia’s war in Ukraine”.

🤝 Finland’s President said following recent polling there is now “sufficient evidence” for the country to join NATO without seeking a referendum.

👴 A Chinese pensioner has lived in Beijing’s airport for 14 years because his family told him he “had to stop smoking and drinking”.

👨‍✈️ A British Airways pilot was jailed for faking his credentials and flying as a pilot between April 2016 and March 2018, until he was found out when he pressed a button “no qualified pilot would”.

❌ “Lithuania’s gas transmission system has been operating without Russian gas imports since the beginning of this month… All Lithuanian gas demand is [now] satisfied through Klaipeda LNG terminal.”

💊 A new study found Merck’s antiviral pill eliminates COVID-19 within three days, although a patient needs to start the drug within five days of developing symptoms for it to be effective. Australia has an order for 300,000 courses.

😢 Russian forces withdrew from Bucha, a town north of Kyiv, “leaving a trail of destruction… [including] bodies strewn across streets”.

⚔️ “Russia’s stock of arms was now ‘pretty bad’, because of its failure to capture Ukraine as quickly as experts expected… [and] because the components they use are made in Ukraine.”

🚘 Tesla’s whacky Cybertruck was cancelled “in the best interest of Tesla and its future”, with development costs far exceeding the original budget.