Kochie’s Weekly Market Update: Interest rates, the economy’s miracle run and property prices

economic-update-December-6

Hey gang, get up to speed on this week’s financial trends with my market updates.

My head is spinning from the amount of information that has come out this week. But it is giving us a great snapshot of where we’re at… and leaves a few question marks as well.

So let me give you my take on it all.

Reserve Bank Leaves Interest Rates On Hold… and says things are looking okay

First Tuesday of the month this week which meant Reserve Bank Board meeting day and, as expected, they kept official interest rates steady at the historically low 0.75 per cent.

That’s after 0.25 per cent cuts in June, July and October. To put it in perspective, there have been 15 rate cuts since November 2011 when the cash rate was 4.75 per cent… wow hasn’t it come down a lot.

The most important thing to come out of Tuesday wasn’t the actual decision but what the RBA board said about it.

“The lower cash rate has put downward pressure on the exchange rate, which is supporting activity across a range of industries. It has also boosted asset prices, which in time should lead to increased spending, including on residential construction. Lower mortgage rates are also boosting aggregate household disposable income, which, in time, will boost household spending.”

In other words, interest rates are set to stay low for an extended period while inflation stays at its current level of 1.5 per cent… so watch the consumer price index.

But We Consumers Aren’t Spending Our Home Loan Savings… we’re saving them

The conundrum for the RBA, and the Federal Government, is that they’re trying to “stimulate” the economy by cutting interest rates and giving us tax cuts. The theory is that we’ll all go out and spend those home loan and tax savings … at the shops, at restaurants, on cars… and bosses will do the same by hiring more people and investing in their businesses.

The problem is we’re not spending…we’re saving and paying off debt. That’s a good thing for us personally, but doesn’t help the economy. 

. Retail trade was flat in October. The annual growth rate fell from 2.5 per cent to a 2-year low of 2.1 per cent.

. Consumer confidence is also at a four-year low.

. In November, 84,708 new cars were sold… down by 9.8 per cent over the year and the biggest annual decline in a decade (November 2009).

It’s almost as if we don’t trust the economy… we’re scared to spend because we think there are problems ahead and we’re building a safety net.

But The Economy Continues It’s Miracle Run

I know it’s un-Australian to say anything good about this country, but our world record economic expansion is incredible… and it’s continuing.

Australia’s record economic expansion is well into its 29th year. The Australian economy grew by 0.4 per cent in the September quarter (experts were expecting 0.5-0.6 per cent) after growing by an upwardly-revised 0.6 per cent in the June quarter. 

Annual economic growth rose from 1.6 per cent to 1.7 per cent. I know that is below the long term average of around 2.5 per cent but there is no sign of recession.

The biggest contribution to growth came from net exports (+0.3 per cent points); followed by government spending. Household consumption, ownership transfer costs, public investment and inventories were all up slightly.

Exports Are The Powerhouse Of The Economy

I had a really inspirational night on Tuesday hosting Austrade’s Exporter Of The Year Awards. An incredible night of celebrating the best exporters in the country.

There were 91 companies highlighted which together employ 34,000 people and earn $7.8 billion a year in exports. There were some incredible stories of success built on resilience and tenacity.

It’s those companies which are behind our last 22 consecutive monthly trade surpluses. In September the trade surplus was $6.85 billion and $4.5 billion in October. The rolling annual surplus was a record $64.4 billion in the year to October.

And China continues to be our biggest customer. Australia’s rolling annual trade surplus with China rose from $66.82 billion to a record $67.79 billion in October. Annual exports to China were at new record highs. 

We also exported a record $14.49 billion of goods to the US in the year to October.

And Property Prices Continue To Surge

The CoreLogic Home Value Index of national home prices rose by 1.7 per cent in November, the biggest increase since October 2003. And capital city home prices rose by 2.0 per cent… also the biggest lift in 16 years. Regional home prices rose by 0.5 per cent in the month.

Sydney home prices lifted by 2.7 per cent in November…the biggest monthly increase since October 1988.

It’s an incredible turnaround. 

This normally could be worry for the Reserve Bank… an overheating property market. But with the rest of the economy pretty sluggish, property could be just this thing to pull us out of the doldrums.

If property values rise, we all may feel a bit more confident and go out and spend.

No More Pesky Cold Calling

The corporate cop, ASIC, will accept the recommendation of the Hayne Royal Commission to ban cold call telephone sales of life insurance and consumer credit insurance.

So many people have been taken advantage of by unsolicited telephone calls from financial companies pushing unsuitable products.

The ASIC ban on unsolicited insurance telephone sales will take effect from mid-January next year.

The next challenge for the regulator is to do the same ban in the digital and online space where most of the scams are happening.

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