Craig James

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<p><strong>EXPERT OBSERVER</strong></p>

<p>The Reserve Bank (RBA) has left the target rates for both the cash rate and 3-year government bond yield at 0.10 per cent. The RBA will purchase an additional $100 billion of bonds issued by the Australian Government and states and territories when the current bond purchase program is completed in mid-April.<br>
 </p>

<h2>What has changed since the last RBA Board meeting on December 1?</h2>

<p>• Joe Biden was sworn in as the 46th US President.</p>

<p>• ANZ job advertisements rose by 2.3 per cent in January to 161,582 available positions. Ads have lifted for eight successive months to be up 5.3 per cent from a year ago.</p>

<p>• Employment rose by 50,000 in December after increasing by 90,000 jobs in November. Full-time jobs rose by 35,700 and part-time jobs rose by 14,300. The unemployment rate fell from 6.8 per cent to 6.6 per cent in December.</p>

<p>• Preliminary retail trade fell 4.2 per cent in December (9.4 per cent annual) after rising 7.1 per cent in November.</p>

<p>• The weekly ANZ-Roy Morgan consumer confidence rating rose to a 15-month high.</p>

<p>• The NAB business confidence index fell from a 31-month high of +12.7 points to +4.5 points in December. But the business conditions index lifted from +7.0 points to 28-month highs of +14.2 points.</p>

<p>• The International Monetary Fund expects the global economy to expand by 5.5 per cent in 2021, which is 0.3 percentage points higher than the October 2020 forecast.</p>

<p>• The Consumer Price Index rose by 0.9 per cent in the December quarter to be up by 0.9 per cent on the year. The trimmed mean (underlying) measure rose 0.4 per cent in the quarter to be up 1.2 per cent on the year.</p>

<p>• Private sector credit (effectively outstanding loans) rose by 0.3 per cent in December to be up 1.8 per cent over the year.</p>

<p>• In the full twelve months to December the underlying Commonwealth Government cash balance was $186,120 million (9.5 per cent of GDP). The budget deficit for the six months to December was $9.5 billion lower than the ‘profile’ deficit.</p>

<p>• A retail trading frenzy for highly shorted stocks led to volatility on global sharemarkets and spilled over into the silver market.</p>

<p>• The Aussie dollar has lifted from US73-74 cents to US75-77 cents.</p>

<h2>The Assessment</h2>

<p>The Reserve Bank Board is not expecting to increase the cash rate until 2024 “at the earliest”. The first Tuesday in the month will never be the same.</p>

<p><img alt="" height="436" src="https://s3-ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/pictures/article-images/screen_shot_2021-02-02_at_3.16.43_pm.png" width="620"></p>

<h2>Perspectives on interest rates</h2>

<p>The Reserve Bank left the cash rate at 0.10 per cent after cutting the rate from 0.25 per cent on November 3. The RBA previously cut the cash rate on March 3 and March 19, 2020, each by 25 basis points. The target rate for 3-year bond yields was left at 0.10 per cent.</p>

<p>On November 3 the RBA cut the 3-year bond target from 0.25 per cent to 0.10 per cent. The RBA implemented the 0.25 per cent target rate for 3-year bond yields on March 19, 2020. There have been 18 cash rate cuts since November 2011 with the cash rate cut from 4.75 per cent. Previously cash rates rose seven times from October 2009 to November 2010 from 3.00 per cent to 4.75 per cent.</p>

<h2>What are the implications of RBA's decision?</h2>

<p>• The Reserve Bank used the word, “strong”, five times in the statement. The economic recovery, employment and retail spending were all described as “strong”.</p>

<p>• The Reserve Bank Governor will go into more depth about the economic recovery in a speech tomorrow. Further, Governor Lowe gives testimony to the House of Representatives Economics Committee on Friday. On the same day the RBA issues the quarterly Statement on Monetary Policy that includes the latest forecasts. We received some inkling of the forecasts today: “In underlying terms, inflation is expected to be 11⁄4 per cent over 2021 and 11⁄2 per cent over 2022.”; “the central scenario is for unemployment to be around 6 per cent at the end of this year and 51⁄2 per cent at the end of 2022.”; the central scenario being for GDP to grow by 31⁄2 per cent over both 2021 and 2022.</p>

<p>• The Reserve Bank Board’s central scenario requires significant job gains and a return to a tight labour market to stoke inflation. And that is not expected until 2024 at the earliest.</p>
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The RBA has left the target rates for both the cash rate and 3-year government bond yield at 0.10 per cent, with an increase not expected until 2024 "at the earliest"

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RBA interest rates - Set the watch for 2024: CommSec's Craig James

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<div class="column">EXPERT OBSERVATION</div>
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<div class="column">China consumer prices rose by 1.8 per cent in the year to April (forecast 1.9 per cent), down from 2.1 per cent in the year to March.</div>
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<br>Food prices fell 1.9 per cent in April to stand 0.7 per cent higher than a year ago. Non-food prices rose 0.2 per cent to stand 2.1 per cent higher than a year ago.<br><p style="display: inline !important;"> </p>
<p style="display: inline !important;">China business inflation - producer prices rose by 3.4 per cent in the year to April (forecast 3.5 per cent), up from 3.1 per cent in the year to March. Raw material costs are up 5.7 per cent on the year.</p>
<p style="display: inline !important;"> </p>
<p style="display: inline !important;"> </p>
The Chinese data have implications for the currency markets and therefore exporters and importers.</div>
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<div class="column"><strong>What does it all mean?</strong></div>
<div class="column">
<br>In China, non-food inflation has been comfortably between 2.0-2.5 per cent over the past year. In contrast Australian inflation is still struggling to get into the Reserve Bank’s 2-3 per cent target band. The bottom line is that the Chinese economy is healthy with firm activity levels and sustainable inflation. While costs for businesses are growing at a faster pace above 3 per cent, it will be remain just a watching brief for policymakers.</div>
<div class="column"> </div>
<div class="column">It is in Australia’s interests – especially in terms of the budget position – to have a healthy Chinese economy. At present the two largest economies – the US and China – are driving global economic growth. At the same time, a lower Australian dollar and rising energy prices are positive influences on resource sector incomes, and thus exports.</div>
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<p style="display: inline !important;"><strong>What do the figures show?</strong></p>
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<div class="column">China inflation:</div>
<div class="column"> </div>
<div class="column">Consumer prices rose by 1.8 per cent in the year to April (forecast 1.9 per cent), down from 2.1 per cent in the year to March.</div>
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<br>Consumer prices fell by 0.2 per cent in April after falling by 1.1 per cent in March. Food prices fell 1.9 per cent in April to stand 0.7 per cent higher than a year ago. Non-food prices rose 0.2 per cent to stand 2.1 per cent higher than a year ago.</div>
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<div class="column">Click here <a href="https://www.propertyobserver.com.au/images/2018/5/10/prices.jpg" target="_blank">to enlarge.</a>
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<div class="column"><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/5/10/prices.jpg" alt=""></div>
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<div class="column">Over the year, food and tobacco prices rose by 1.1 per cent; clothing rose 1.1 per cent; rent, fuel &amp; utilities rose by 2.2 per cent; household goods and appliances rose 1.5 per cent; transport and communications rose 1.1 per cent; education &amp; entertainment rose 2.0 per cent; healthcare rose 5.2 per cent; and other goods and services were up 0.9 per cent.</div>
<div class="column"> </div>
<div class="column">Producer prices rose by 3.4 per cent in the year to April (forecast 3.5 per cent), up from 3.1 per cent in the year to March. It was the first lift in the annual rate in seven months.</div>
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<div class="column">Click here <a href="https://www.propertyobserver.com.au/images/2018/5/10/non-food.jpg" target="_blank">to enlarge.</a>
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<div class="column"><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/5/10/non-food.jpg" alt=""></div>
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<div class="column">Over the year, the prices of raw materials were up by 5.7 per cent with the cost of processing up 3.9 per cent. The means of production were up 4.5 per cent with extraction costs up 6.1 per cent.<br><p style="display: inline !important;"> </p>
<p style="display: inline !important;">Over the year prices of consumer goods rose just 0.1 per cent with consumer durables down 0.6 per cent over the year, “daily use” goods up 0.9 per cent and clothing up just 0.2 per cent.</p>
</div>
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<div class="column"><strong>What is the importance of the economic data?</strong></div>
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<br>China’s National Bureau of Statistics releases its monthly economic statistics around mid-month. Quarterly GDP data is released around the 19th of January, April, July and October. China’s Customs Office releases trade data, and the People’s Bank of China releases financial statistics, around the 10th of each month. China is Australia’s largest trading partner and changes in the Chinese economy have major implications for the Aussie economy.</div>
<div class="column"> </div>
<div class="column"><strong>What are the implications for interest rates and investors?</strong></div>
<div class="column"> </div>
<div class="column">Chinese consumer inflation is still well below the broad target for 2018 of “around 3 per cent”. Consumer goods inflation is low with main strength in the services sector, especially healthcare.</div>
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<div class="column">Chinese producer prices are still growing in excess of consumer prices. So policymakers will remain alert, but at this stage there won’t be undue concern.</div>
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<div class="column">CommSec doesn’t expect a change in Australian interest rates in the near term. <br><span style="font-size: 12.16px;"><br></span>
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<div class="column"><span style="font-size: 12.16px;"><em>Craig James is the chief economist at <a href="https://www.comsec.com.au/default.aspx" target="_blank">CommSec</a>.</em><span> </span></span></div>
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Chinese inflation data confirms healthy economy: CommSec

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<p>EXPERT OBSERVATION</p>
<p>Mid-sized companies and international shares have out-performed ‘Mums and Dads’ stocks over the past five years.</p>
<p>It is useful for investors to understand how different asset classes are performing as it may highlight opportunities.</p>
<p><strong>Smaller returns from major Australian companies</strong></p>
<p>Many Australians got their start in the share market through privatisations and demutualisations. That is, companies like Telstra, AMP, Colonial, Commonwealth Bank, Suncorp, Qantas and state betting agencies like TAB (NSW). Some retail investors have held on to these stocks over time and perhaps added modestly to their holdings with positions in other domestic companies. For others, the initial investment may have sparked broader interest with investors adding to their portfolios with domestic and international investments and perhaps positions in options and futures.</p>
<p>In 1999, CommSec devised an index called the Mums and Dads index to highlight the performance of retail investors who got their start in the share market through demutualisations, privatisations or ‘household names’ like Woolworths. The current composition of the CommSec Mums and Dads index is Telstra, Commonwealth Bank, Woolworths, Qantas, AMP, Tabcorp, Suncorp, IAG and Wesfarmers.</p>
<p>Until around five years ago, total returns on the CommSec Mums &amp; Dads index (share prices and dividends included) closely tracked total returns on the broader index – the All Ordinaries accumulation index. But over the past five years, the All Ords accumulation index has lifted around 82% while the CommSec Mums and Dads index has lifted by just 35%.</p>
<p><strong>Mid-sized companies gain favour</strong></p>
<p>One of the out-performing areas over the past five years has been the mid-tier companies. Since mid-2013 the MidCap50 accumulation index has doubled in value. As noted above, over the same period the All Ords accumulation index lifted by around 82% while returns on the CommSec Mums and Dads index rose by just 35%.</p>
<p>The MidCap50 includes a number of ‘new wave’ stocks as well as ‘disruptors’ – companies challenging those with far bigger market size or capitalisation – that is, the ‘big cap’ companies. Notable mid-tier companies include A2 Milk, Dominos, Flight Centre, JB Hi-Fi and Resmed.</p>
<p>On a shorter-term comparison, since the start of 2018 the All Ordinaries accumulation index has lifted by 6% (ASX 200 accumulation +5.9%) while the MidCap50 accumulation index has lifted by 6.6%. By comparison the CommSec Mums and Dads index has risen by just 1.6%.</p>
<p>However just as investors constantly need to track the performance of their domestic portfolios – especially the influence of new themes or paradigms – there is also the need to take a broader perspective. Considerations include the differing performance of domestic industries or sectors to those abroad.</p>
<p>Global shares have certainly performed strongly over recent years. The US Dow Jones and S&amp;P 500 indexes have hit record highs in the past month. And the Japanese Nikkei 225 index hit 27-year highs yesterday.</p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/10/2/commsec%201.jpg" alt=""></p>
<p><strong>Global shares</strong></p>
<p>Five or 10 years ago it was more difficult for retail investors to invest in individual companies that were listed on overseas share markets. To gain overseas exposure, investors tended to favour managed funds.</p>
<p>Today, retail investors have much more flexibility to invest in individual companies on overseas exchanges, or via exchange traded funds (ETFs) and managed funds. Australia accounts for just 2% of world share market capitalisation, so there is a raft of opportunities outside our borders. One complication is the need to take into account currency fluctuations. Since the currency was floated, the Australian dollar has fluctuated on average by US14 cents a year against the greenback, although there has been less volatility in recent years</p>
<p>One way of measuring the performance of the ‘world share market’ is by reference to an index. And one of the best known indexes is that compiled by Morgan Stanley Capital International (MSCI).</p>
<p>The MSCI World Index, is described as: “A broad global equity index that represents large and mid-cap equity performance across 23 developed markets countries. It covers approximately 85% of the free float- adjusted market capitalisation in each country and MSCI World Index does not offer exposure to emerging markets.” </p>
<p>The world MSCI can be tracked through finance websites on a daily basis as well as wire services and adjustments can be made for dividends and currency fluctuations.</p>
<p>Over the past five years the world MSCI in US dollar terms has risen by 41% with total returns (measured by the accumulation index) up by 56%. By comparison, in Australian dollar terms the MSCI Australian index rose by 17% and 42% respectively over the period.</p>
<p>But when you adjust the world MSCI for currency changes – convert the index to Australian dollar terms – the out- performance is enhanced even further. Over the past five years the world MSCI has lifted by 83% in Australian dollar terms with total returns up 101%.</p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/10/2/commsec%202.jpg" alt=""></p>
<p><strong>Shorter-run returns</strong></p>
<p>As always the time comparison chosen may affect the results obtained. And with international shares, changes in the value of the US dollar can significantly impact the results.</p>
<p>Looking back since the index was constituted in May 2000, and assessing returns in Australian dollar terms, returns on the ASX 200 have risen four-fold whereas returns on the world MSCI have doubled. So on a long-term basis the Australian share market has out-performed global shares.</p>
<p>However, looking over the past decade, Australian dollar returns for both the ASX 200 and the world MSCI tracked closely, especially up to 2014. But in the past four years the world MSCI broke away, lifting by 68% while the ASX 200 has risen by only 39%.</p>
<p>Further, since the start of 2018, the world MSCI accumulation index in Australian dollar terms has lifted by around 14%, well ahead of returns of around 6% for the Australian market.</p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/10/2/commsec%203.jpg" alt=""></p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/10/2/commsec%204.jpg" alt=""></p>
<p><strong>The US out-performs</strong></p>
<p>The Dow Jones index is probably the best known of the US equity indexes. Other indexes include the S&amp;P 500, Nasdaq Composite and Russell 2000. And while the price index – the Dow Jones Industrial average (DJIA) – is commonly quoted, there is also a total return index for the Dow.</p>
<p>Up until the end of September the DJIA rose by 7% and total returns (includes dividends) lifted by 10% while returns on the index in Australian dollar terms have lifted by around 18%.</p>
<p>By comparison, in local currency terms the ASX 200 rose by 2.3%, the All Ords lifted 2.6% and total returns on Australian shares have increased by around 6%.</p>
<p>Certainly the US economy has performed strongly with annual economic growth sitting at 4.2%, unemployment near 18-year lows and inflation sitting at just 2%. However the old adage applies for the share market – past performance is no guarantee of future returns.</p>
<p>The US Dow Jones has made solid returns – especially over the past two years, averaging annual growth near 22% and well out-performing the Australian market.</p>
<p>While the US economy is performing strongly, the budget deficit remains high, the Federal Reserve is still in the process or ‘normalising’ interest rates and the US is engaged in trade disputes with a raft of economies such as China and the European Union.</p>
<p>In addition some would cite relatively expensive valuations for US shares with prices around 17.8 times forward earnings, well above the longer-term average of around 14.5 times earnings.</p>
<p> <img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/10/2/commsec%205.jpg" alt=""></p>
<p><strong>What are the implications for investors?</strong></p>
<p>Global share markets have made solid gains in recent years reflecting economic recoveries after the global financial crisis. In this respect, the US has had one of the stand-out economies and share markets.</p>
<p>Australian investors can now embrace a broader range of opportunities than in the past, whether they are domestic companies and sectors or opportunities across global economies. While there may have been good reasons in the past for investors to stick with blue-chip ‘Mums and Dads’ investments, better performing investments locally and globally argue for a fresh look at portfolios.</p>
<p>Investments in international shares and small and mid-sized Australian companies provide scope for greater diversification in investor portfolios.</p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/10/2/commsec%206.jpg" alt=""> </p>
<p><em><strong>Craig James </strong>is the chief economist at <a href="https://www.comsec.com.au/default.aspx" target="_blank">CommSec</a>. </em></p>
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'Mum and dad' stocks are underperforming: CommSec's Craig James

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<p>GUEST OBSERVER</p>
<p>There are a number of ‘hot button’ issues to monitor at present: home prices; inflation, the Aussie dollar and the outlook for the US and the global economy.</p>
<p>So what are the current RBA views?</p>
<p>Well, in typical economist parlance, there is a lot of ‘on the one hand this, on the other hand that’.</p>
<p>For instance: “conditions in the housing market vary considerably around the country”; “Labour market indicators continue to be mixed”; and “the economy is continuing its transition”.</p>
<p>Importantly though, the Reserve Bank remains positive.</p>
<p>The global economy has “improved”; domestic economic growth is forecast around 3%; and headline inflation is tipped to lift to over 2% in 2017.</p>
<p>So while the Reserve Bank is sticking with its “neutral stance”, it clearly won’t be cutting rates anytime soon.</p>
<p>The Reserve Bank has left the cash rate at 1.50%.</p>
<p>The previous rate cut was in August 2016 (25 basis points).</p>
<p>There have now been 12 rate cuts since November 2011, cutting rates from 4.75% to 1.50%.</p>
<p>The Reserve Bank had previously lifted rates seven times from October 2009 to November 2010 – a total of 1.75 percentage points, from 3% to 4.75%.</p>
<p>If the Reserve Bank was to change rates in coming months, the trigger is more likely to emerge from overseas, probably a development from policies adopted by the new US government.</p>
<p>For instance, stimulatory policies could serve to lift the US, and the broader global economy, in turn boosting inflation.</p>
<p>In that event, rate hikes would be more likely in Australia than rate cuts.</p>
<p>Conversely, if the fiscal stimulus doesn’t emerge in the US, rather protectionist actions are advanced, that could serve to restrain global economic growth, stifle inflation pressures and cause Australia’s Reserve Bank to cut rates to protect domestic activity.</p>
<p>Oil prices need to be watched carefully in coming months.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/02/07/Screen%20Shot%202017-02-07%20at%207.18.00%20pm.jpg" target="_blank">Click to enlarge</a></p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/02/07/Screen%20Shot%202017-02-07%20at%207.18.00%20pm.jpg" alt=""></p>
<p>If key oil nations continue to comply with new production targets and support oil prices, then deflationary fears will continue to ease.</p>
<p>Fixed-term interest rates have lifted sharply over the past six months.</p>
<p>But future moves will be dependent on European elections in 2017 as well as US monetary and fiscal policies.</p>
<p>Bank depositors are getting better returns at present, but still returns remain more attractive amongst blue-chip listed companies.</p>
<p>The Reserve Bank will especially watch the following in coming months: US fiscal policy; Chinese economic activity; commodity markets; Australian home prices; inflation expectations; and the local job market.</p>
<p>CommSec expects the Reserve Bank to stay on the interest rate sidelines for the 2017 year.</p>
<p><em>Craig James is the chief economist at <a href="https://www.comsec.com.au/default.aspx" target="_blank">CommSec</a>.</em></p>
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Reserve Bank set for a long wait on sidelines on interest rates: Craig James

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Craig James sees only one possible rate rise in 2018

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<p>This is the third year running that this topic has been included in the year’s Big Issues.</p>
<p>In 2015 we said: “<em>the answer will be revealed over 2016</em>.” In 2016 we were more circumspect saying “<em>we believe that discussion will continue to swirl about what sort of landing the housing market will experience.</em>”</p>
<p>And indeed the issue has continued to be debated. But arguably the longer that the issue is debated, the more likely that Australia’s buoyant housing markets, notably Sydney and Melbourne, will experience a soft landing.'</p>
<p>Certainly there are many parts of the country that have far different experiences. Perth and Darwin housing markets are going through corrections after mining and energy construction booms. Adelaide and Brisbane have generally seen steady conditions. However the significant apartment building in Brisbane has led to a very soft rental market. Interestingly though, demand for some accommodation like townhouses is strong and not being met by supply, supporting prices.</p>
<p>The Hobart housing market is firm, benefitting from an overflow of housing demand from Sydney and Melbourne. The issue is one of under-supply rather than over-supply. And the Canberra housing market remains healthy, due in part to the control of land supply by the ACT Government.</p>
<p>The Sydney housing market has certainly softened with a combination of cooling demand and the gradual completion of more homes, especially apartments. The auction clearance rate has eased to around 61 per cent, down from around 80 per cent a year ago. But population growth remains solid in Sydney and rental vacancy rates are still low. In Melbourne, the market remains solid, again supported by population growth.</p>
<p>A key factor that points to the potential for a “soft” landing rather than “hard” landing in markets such as Sydney and Melbourne has been the policy of lenders. Reflecting on the experience of housing over-supply in the US and Europe during the Global Financial Crisis, Australian lenders adopted a new policy. Before lenders would provide finance to developers they sought that around 100 per cent of properties be sold “off the plan” by developers. There is still scope for ‘indigestion’ in some markets with a lot of building going on, but less scope for a broader “hard landing”.</p>
<p><span style="font-size: 12.16px;">Craig James cited a number of big issues for 2018:</span></p>
<p>- US President Donald Trump </p>
<p>- How long will inflation stay low?</p>
<p>- The disconnect between jobs and wages</p>
<p>- Housing: Hard landing or soft landing?</p>
<p>- Infrastructure</p>
<p>- The economic benefit of lower taxes</p>
<p>- Consumer Debt</p>
<p>- The 'slowdown' of the Chinese economy</p>
<p> </p>
<p><em>Craig James is the chief economist at <a href="https://www.comsec.com.au/default.aspx" target="_blank">CommSec</a>.</em><span> </span></p>
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Housing hard landing or soft landing? CommSec Research - The Big Issues of 2018

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<div class="column">The CoreLogic Home Value Index of capital city home prices fell by 0.3 per cent in February to stand 2.0 per cent higher over the year. The national home price index fell by 0.1 per cent in February to be up 2.2 per cent over the year. It was the smallest annual growth in national prices in 18 months.</div>
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<div class="column">Prices fell in six of the eight capital cities in February. Hobart prices rose the most, up by 0.7 per cent, while Darwin prices fell the most, down by 0.9 per cent. Hobart leads annual gains in home prices, up 13.1 per cent in the year to February. Darwin home prices remained in the doldrums, falling by 7.4 per cent over the year.</div>
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<div class="column">Apartment prices across capital cities are up by 3.6 per cent over the year to February, producing a total return of 7.7 per cent. Apartments are outperforming houses which rose by 1.5 per cent over the year with total returns up 4.6 per cent.</div>
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<p style="display: inline !important;"> </p>
<p style="display: inline !important;">The CBA/Markit Manufacturing index rose from 55.4 to 55.6 in February. The Australian Industry Group manufacturing index eased from 58.7 to 57.5 in February. Readings above 50.0 indicates that the manufacturing sector is expanding.</p>
<p>Home price data is important for retailers, especially those focussed on consumer durables. The manufacturing data provides guidance for companies in the Industrials sector.</p>
<p>What does it all mean?</p>
<p>Housing is all about supply and demand. Demand for homes is strong in Hobart, outpacing supply, and prices are rising. In contrast, the previously high-flying Sydney market is experiencing a correction in prices. More new homes are on the market, giving buyers greater choice. As a result, prices are adjusting to more realistic and sustainable levels. Home prices in Sydney are now lower than a year ago.</p>
<p>The rebalancing of the housing market should be closely watched, but it is not a cause for concern. Supply and demand are always in adjustment in housing markets</p>
<p>Sydney prices may ease a little further and Melbourne prices also have potential to soften over 2018.</p>
<p>There are more anecdotes of “rent-vesting” occurring where young people from Sydney and Melbourne are buying in other capital cities and regional areas and using rent proceeds to offset their costs of leasing in inner-city Sydney and Melbourne.</p>
<p>Latest survey data shows that the manufacturing sector is in strong shape. As always, the focus now is to gauge whether wage and price pressures are starting to creep through.</p>
<p>Ai Group said “many manufacturers are now looking to employ more staff but are finding it difficult to find skilled workers for their locations or specialisations”.</p>
<p>Click here <a href="https://www.propertyobserver.com.au/images/2018/3/1/commsec1.jpg" target="_blank">to enlarge.</a></p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/3/1/commsec1.jpg" alt=""></p>
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<p><span>What do the figures show? </span></p>
<p><span>Home prices</span></p>
<p>The CoreLogic Home Value Index of capital city home prices fell by 0.3 per cent in February to stand 2.0 per cent higher over the year.</p>
<p>The national home price index fell by 0.1 per cent in February to be up 2.2 per cent over the year. It was the smallest annual growth in national prices in 18 months.</p>
<p>In capital cities, house prices fell by 0.4 per cent in February and apartment prices were flat. House prices were up 1.5 per cent on a year ago and apartments were up by 4.3 per cent.</p>
<p>In regional areas, home prices rose by 0.4 per cent in February to be up 2.8 per cent on the year.</p>
<p>Click here <a href="https://www.propertyobserver.com.au/images/2018/3/1/commsec2.jpg" target="_blank">to enlarge</a></p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/3/1/commsec2.jpg" alt=""></p>
<p>The average Australian capital city house price (median price) was $694,478 and the average unit price was $578,244.</p>
<p>Dwelling prices fell in six of the eight capital cities in February: Home prices fell in Darwin (down 0.9 per cent) from Sydney (down 0.6 per cent), Canberra (down 0.3 per cent), Perth (down 0.2 per cent) and Melbourne and Brisbane (both down 0.1 per cent). Prices were flat in Adelaide. Prices rose 0.7 per cent in Hobart.</p>
<p>Home prices were higher than a year ago in six of the eight capital cities. Prices rose most in Hobart (up 13.1 per cent); followed by Melbourne (up 6.9 per cent); Canberra (up 3.2 per cent); Adelaide (up 2.2 per cent); Brisbane (up 1.8 per cent). Prices fell in Darwin (down 7.4 per cent), Perth (down by 2.7 per cent) and Sydney (down by 0.5 per cent).</p>
<p>Total returns on capital city dwellings rose by 5.4 per cent in the year to February with houses up 4.6 per cent on a year earlier and units up 7.7 per cent.</p>
<p>Click here <a href="https://www.propertyobserver.com.au/images/2018/3/1/commsec3.jpg" target="_blank">to enlarge.</a></p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/3/1/commsec3.jpg" alt=""></p>
<p>Manufacturing Purchasing Managers’ Indexes</p>
<p>The CBA/Markit Manufacturing index rose from 55.4 to 55.6 in February. Readings above 50.0 indicate that the sector is expanding.</p>
<p>CBA/Markit notes: “Australian manufacturers are benefiting from the positive global backdrop. New export orders were up sharply in February. This extra demand is driving strong jobs growth. But capacity pressures remain evident in the rundown of finished goods stocks, lengthening supplier delivery times and rising backlogs of work. Rising input and output prices are one outcome.”</p>
<p>The Australian Industry Group manufacturing index eased from 58.7 to 57.5 in February. The month of February marked the 17th month of expanding or stable conditions for the manufacturing sector.</p>
<p>Ai Group said that all of the seven activity subindexes contained in the report improved in February.</p>
<p>“This marks a fourth consecutive month in which all seven activity sub-indexes have expanded,” the group said.</p>
<p>“Five of the seven activity indexes slowed in February, however, with only the employment and exports sub- indexes accelerating.”</p>
<p>What is the importance of the economic data?</p>
<p>The CoreLogic Hedonic Australian Home Value Index is based on Australia’s biggest property database. Unlike the ABS Index, which excludes terraces, semi-detached homes and apartments, the CoreLogic Hedonic Index includes all properties. Home prices are an important driver of wealth and spending.</p>
<p>The Australian Industry Group compile the Performance of Manufacturing Index and Performance of Services index each month. CBA and Markit also compile purchasing manager surveys for manufacturing and services sectors. The surveys are amongst the timeliest economic indicators released in Australia.</p>
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<p><span>The surveys are useful not just in showing how key sectors are performing but also in providing some sense about where they are headed. The key ‘forward looking’ components are orders and employment. </span></p>
<p><span>What are the implications for interest rates and investors?</span></p>
<p>In the housing sector, prices of established homes are easing in many parts of the country. In the manufacturing sector there are reports of skilled shortages, potentially leading to higher wages and prices. Welcome to 2018 where the world is on watch for higher inflation rates despite mixed messages.</p>
<p>CommSec expects official interest rates to be stable until late 2018. But as always, the outlook for rates is data dependent. It will be a case of monitoring each economic indicator very closely to see if there are signs of inflationary pressures emerging.</p>
<p><em>Craig James is the chief economist at <a href="https://www.comsec.com.au/default.aspx" target="_blank">CommSec</a>.</em><span> </span></p>
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jrobinson-rf4aSBido9

Sydney prices may ease a little further: CommSec

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<p>The annual rate of economic growth eased in the December quarter of last year. But that is to be expected – figures bounce around from month to month and quarter to quarter. And it is even more understandable given the length of our record economic expansion. But economic growth is likely to lift over 2018. We share the Reserve Bank’s view that growth will be stronger this year than last year. The economy is tipped to grow by 2.9 per cent in 2018 after 2.3 per cent growth in 2017.</p>
<p class="x_Bullets">The release of quarterly economic growth figures is a good time to take stock. Australia has a record economic expansion with record low interest rates, below-target inflation and a jobless rate nearing a level that is regarded as “full employment”. No other advanced economy has experienced an economic expansion as long as we are enjoying in Australia. Remarkable.</p>
<p class="x_Bullets">Consumer spending finished 2017 strongly and will be supported over 2018 by a stronger job market, low interest rates and slightly firmer wage growth. Business spending will be supported by record profitability, domestic infrastructure projects and a buoyant global economy.</p>
<p class="x_Bullets">Productivity slowed in the December quarter but that is to be expected given the extraordinary lift in employment over the year. Once the new workers get up to speed, they should – in theory – be boosting output and lifting economic growth. It is an area to watch over 2018.      </p>
<p class="x_Bullets">It is always important to remember that two months have passed since the economic growth figures. And more recent data suggests the economy has started 2018 with solid momentum.</p>
<p class="x_Bullets">The Reserve Bank Governor again said this morning that the next move in interest rates was likely to be up. But there is no reason to either cut or lift interest rates at present. A further period of interest rate stability lies ahead, and the record low interest rates will be highly supportive of continued firm and sustainable economic growth.</p>
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<p><span><em>Craig James is the chief economist at <a href="https://www.comsec.com.au/default.aspx" target="_blank">CommSec</a>.</em> </span></p>
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Economic growth likely to lift over 2018: CommSec

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<div>
<div>EXPERT OBSERVATION</div>
<div> </div>
<div align="justify">Private sector credit (effectively outstanding loans) rose by 0.2 per cent in May after a 0.4 per cent rise in April. It was the slowest monthly growth in 16 months. Credit was up 4.8 per cent over the year – equalling the slowest rate in four years.</div>
<div align="justify"> </div>
<div align="justify">Investor housing finance was flat in May with annual growth easing to a record low of 2.0 per cent. The data has been compiled since 1990.</div>
<div align="justify"> </div>
<div align="justify">In seasonally-adjusted terms, new detached house sales fell by 4.4 per cent in May to stand 12.8 per cent down on the peak in December and stand 14.1 per cent lower than a year ago.</div>
<div> </div>
<div>Private sector credit figures have implications for finance providers, retailers, and companies dependent on business spending.</div>
<div> </div>
<div><img src="https://www.urban.com.au/images/2018/6/29/CJ%20Graph%201.JPG" alt=""></div>
<div> </div>
</div>
<div>
<div><strong>What does it all mean?</strong></div>
<div> </div>
<div align="justify">The regulators have been clearly successful in slowing investor demand for home loans. Investor home lending is still growing, but at the slowest pace in 28 years of records.</div>
<div align="justify"> </div>
<div align="justify">Overall Aussie consumers and businesses remain wary about taking on more debt. Credit is broadly lifting in line with the nominal growth of the economy with owner-occupier home loans and business lending providing the main supports. The Reserve Bank will be comforted by recent trends.</div>
<div align="justify"> </div>
<div align="justify">Banks will need to work harder for the affections of borrowers and savers. Aussies are reluctant to borrow and returns on savings are arguably more attractive in the sharemarket.</div>
<div> </div>
<div><strong>What do the figures show?</strong></div>
<div> </div>
<div>Private sector credit (effectively outstanding loans)rose by 0.2 per cent in May after a 0.4 per cent rise in April. It was the slowest monthly growth in 16 months. Credit was up 4.8 per cent over the year – equalling the slowest rate in four years.</div>
<div> </div>
<div>Housing credit grew by 0.4 per cent in  per cent May and has risen 0.4-0.5 per cent a month over the past year. But annual growth eased from 6.0 per cent to 5.8 per cent – the lowest growth rate for over four years.</div>
<div> </div>
<div>Owner occupier housing credit rose by 0.6 in May to stand 7.9 per cent higher over the year.</div>
<div> </div>
<div>Investor housing finance was flat in May with annual growth easing to a record low of 2.0 per cent.</div>
<div> </div>
<div>Personal credit fell for the fourth straight month, down 0.1 per cent in May to be down 1.3 per cent over the year. It was the biggest annual decline in six years.</div>
<div> </div>
<div>Business credit fell by 0.2 per cent in May with annual growth easing from an 8-month high of 4.3 per cent to 3.8 per cent.</div>
<div> </div>
<div>Both M3 and Broad Money rose by 0.4 per cent in May to be up 2.5 per cent for the year. Broad Money is growing at the slowest annual pace in 25½-years.</div>
<div> </div>
<div>Term deposits with banks fell by $0.6 billion to $581.1 billion in May. Annual growth fell from 3.2 per cent to a four month low of 3.1 per cent.</div>
<div> </div>
<div>Loans and advances by banks grew by 4.9 per cent in the year to May. And loans and advances by non-bank financial intermediaries rose by 4.4 per cent over the year, down from a 9½-year high of 7.1 per cent in March.</div>
<div> </div>
<div>Deposits at banks rose by just 0.1 per cent in May to stand 2.5 per cent higher than a year ago.</div>
<div> </div>
<div>In seasonally-adjusted terms, new detached house sales fell by 4.4 per cent in May to stand 12.8 per cent down on the peak in December and stand 14.1 per cent lower than a year ago.</div>
<div> </div>
<div>The Housing Industry Association reported: The monthly reduction in May was synchronised across the surveyed states – sales fell by 6.8 per cent in New South Wales, 4.6 per cent in Victoria, 5.0 per cent in Queensland, 0.2 per cent in South Australia and 2.4 per cent in Western Australia.</div>
<div> </div>
<div>No data was published by the HIA for multi-unit sales.</div>
<div> </div>
<div><strong>What is the importance of the economic data?</strong></div>
<div> </div>
<div>Private sector credit figures are released by the Reserve Bank on the last working day of the month. Credit is separated into three categories – housing, other personal and business. Private sector credit is effectively the amount of loans outstanding in the economy. If growth in lending is strong then it suggests that credit from financial institutions is freely available, underlying demand for assets such as cars and houses is firm and that the price of credit (interest rates) is attractive.</div>
<div> </div>
<div>The Housing Industry Association releases data on the sales of new homes each month. The HIA collects the data each month from a sample of Australia's largest 100 home builders. The survey covers around 15 per cent of the home building industry.</div>
<div> </div>
<div><img src="https://www.urban.com.au/images/2018/6/29/CJ%20graph%202.JPG" alt=""></div>
<div> </div>
<div><strong>What are the implications for interest rates and investors?</strong></div>
<div> </div>
<div>Home building and buying activity will be driven by those seeking to live in the dwellings rather than looking at homes as a potential investment. The latest trends in lending should allay concerns about the potential for a massive oversupply of homes developing.<br><br>
</div>
<div>The reduction in investor home loan demand should ensure that home prices grow at more sustainable rates over the next few years.</div>
<div> </div>
<div>Credit and money growth remain sluggish, keeping inflationary pressures at bay.</div>
<div> </div>
<div><img src="https://www.urban.com.au/images/2018/6/29/CJ%20Graph%203.JPG" alt=""></div>
<div> </div>
<div>CommSec expects official interest rates to remain on hold until 2019.</div>
<div> </div>
<div><em>Craig James is chief economist at CommSec.</em></div>
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Record slowdown for investor home loans: Commsec's Craig James

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<div>EXPERT OBSERVER</div>
<div> </div>
<div>Total household wealth (net worth) fell for the first time in two years, down just 0.4 per cent to $10,222.8 billion at the end of March 2018. In per capita terms, wealth eased from a record $414,277 to $410,708 in the March quarter.</div>
<div> </div>
<div>Foreigners held $557.4 billion of Aussie shares in the March quarter, down from $582.5 billion in the December quarter.</div>
<div> </div>
<div>
<div><strong>What does it all mean?</strong></div>
<div> </div>
<div>The Finance &amp; Wealth publication from the Bureau of Statistics contains the most complete figures on household finances. And for the first time in two years wealth eased slightly. This hardly comes as a surprise – home prices eased in the quarter and the losses weren’t made up elsewhere, such as on the sharemarket.</div>
<div> </div>
<div>On average, each Australian has net assets (assets less liabilities) of just over $410,000, a total that has lifted by over $9,000 in the past year. And over the past five years per capita wealth has lifted by more than $100,000 or 36 per cent. It is clear that household balance sheets remain solid.</div>
<div> </div>
<div><img src="https://www.urban.com.au/images/2018/6/29/CJ%20Graph.JPG" alt=""></div>
<div> </div>
<div>Looking ahead home prices are likely to ease further from record levels. The $64 question is whether gains on the sharemarket will offset the reduced valuations of Australian homes. Per capita wealth may consolidate near $400,000 after tremendous gains over the past five years.</div>
</div>
<div>
<div> </div>
<div>Total household wealth (net worth) fell for the first time in two years, down just 0.4 per cent to $10,222.8 billion at the end of March 2018. In per capita terms, wealth eased from a record $414,277 to $410,708 in the March quarter. Wealth is still up $9,072.70 or 2.3 per cent over the year.</div>
<div> </div>
<div><img src="https://www.urban.com.au/images/2018/6/29/CJ%20Graph%204.JPG" alt=""></div>
<div> </div>
<div>The ABS noted, “Household liabilities outgrew assets during March quarter 2018, resulting in a decrease of 0.4 per cent in household net worth, falling from a 2.0 per cent rise last quarter. Household liabilities was the largest contributor to the decrease in household net worth, detracting 0.3 percentage points, followed by land and dwellings assets detracting 0.2 percentage points.</div>
<div> </div>
<div>Households held a record $1,105.7 billion in cash and deposits at the end of March. Cash and deposit holdings represented 21.65 per cent of financial assets, down from 21.71 per cent in the December quarter but still just above the post global financial crisis (GFC) average of 21.16 per cent and the long-term average of 16.3 per cent.</div>
<div> </div>
<div>Households held a record $939.3 billion in shares or 18.6 per cent of all financial assets, in line with the average since the global financial crisis.</div>
<div> </div>
<div><img src="https://www.urban.com.au/images/2018/6/29/CJ%20Graph%208.JPG" alt=""></div>
<div> </div>
<div>Pension fund (superannuation fund) assets fell by $9.9 billion to $2,174.5 billion in the March quarter. Cash and deposits stood at 11.3 per cent of financial assets, below the 13.5 per cent average since the global financial crisis, but above the long-term average of 9.4 per cent.</div>
<div> </div>
<div>Foreigners held $557.4 billion of Aussie shares in the March quarter, down from $582.5 billion in the December quarter. Foreigners held 30.5 per cent of total listed shares (long-term average 32.9 per cent).</div>
<div> </div>
<div><img src="https://www.urban.com.au/images/2018/6/29/CJ%20Graph%205.JPG" alt=""></div>
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<div>
<div><strong>What is the importance of the economic data?</strong></div>
<div><strong> </strong></div>
<div>The Australian Bureau of Statistics releases the Financial Accounts publication each quarter. The data covers assets, liabilities and financial flows for the key sectors of the economy. Figures on financial wealth help reveal the true state of household finances.</div>
<div> </div>
<div><img src="https://www.urban.com.au/images/2018/6/29/CJ%20Graph%207.JPG" alt=""></div>
<div> </div>
<div>
<div><strong>What are the implications for interest rates and investors?</strong></div>
<div><strong> </strong></div>
<div>With wages tracking closely in line with prices and wealth now easing, there will be continued uncertainty about future spending by Australian families. In other words, just another reason to leave cash rates on hold.</div>
<div> </div>
<div>
<div>CommSec expects official rates to remain stable until early 2019.</div>
<p><em>Craig James is chief economist at CommSec.</em></p>
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