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EXPERT OBSERVER
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<div>One of the most important releases of the global calendar, the US nonfarm payrolls, confirmed things are turning back down in the face of slower growth and trade war concerns. </div>
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<div>Earlier in the week there had been a similarly weak indicator from a private payrolls report.</div>
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<div>Nonfarm payroll employment increased by just +75,000 in May 2019 according to the Bureau of Labor Statistics, and critically there were also substantial downwards revisions to March (-36,000) and April (-39,000). </div>
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<div>Combine a weak monthly gain of +75,000 with a combined revision of -75,000 and you get...not very much, although at least this did mark a record 104 consecutive months of gains. </div>
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<div>The 3-month average gain is now just above +150,000, having been above +200,000 for much of 2018 and 2019. </div>
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 The unemployment rate held steady at 3.6 per cent. <div class="separator"><img src="https://1.bp.blogspot.com/-VV6mk5t6S2Q/XPrPZQdLQBI/AAAAAAAAwZs/3T9WL5W_p5MDtBBnLiuydEN132e6RBW4QCLcBGAs/s640/NFP2.jpg" width="640" height="382" data-original-height="833" data-original-width="1390"></div>
 But annual average hourly earnings growth slowed to +3.1 per cent. <div class="separator"><img src="https://1.bp.blogspot.com/-6K-7SN1xz_A/XPrPZfVYmjI/AAAAAAAAwZw/6CDgCikRDroi5irW2jUAMrfmfWIjNo5_ACLcBGAs/s640/NFP3.jpg" width="640" height="364" data-original-height="790" data-original-width="1385"></div>
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<div>A couple of Antipodean observations.</div>
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 Firstly, hard though it is to imagine, markets are pricing a 4 in 5 chance of the Fed cutting interest rates as soon as July(!). </div>
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<div>And secondly, looking at unemployment rates from Japan to Germany, Netherlands, the US, UK, Taiwan, and South Korea - all 4 per cent or considerably lower in many cases - it's not hard to imagine that Australia's NAIRU could be much lower than previously assumed. </div>
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<div>For that reason and others, markets are now pricing in two further rate cuts in Australia over the next 12 months.</div>
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<div>I was travelling yesterday and didn't get around to posting the pre-election housing finance figures, which showed a small uptick for homebuyers and a decline for investors.</div>
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<div>Speaking with a few mortgage brokers yesterday, there has been a surge of enquiries since the election, and especially now interest rate cuts are being passed on.</div>
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<div>Importantly, while banks were previously taking up to a couple of months to return documentation, not the figure is back down to about a week, so things are 'back to normal' in that regard. </div>
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<div>PETE WARGENT is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank">blogger</a>. </div>
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Rate hiking cycle crashes and burns: Pete Wargent

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Lendlease, with backing from Aware Super, has plans for a $1 billion build-to-rent project in New York's Brooklyn.
Lendlease paid $US100 million ($138 million) for its 90 per cent stake in the development project.
It will be about 800 apartments, some 30 percent earmarked for affordable housing under a New York City program.
The property, 1 Java Street, spans a full city block on the Greenpoint waterfront along the East River.
Sold by David Zalaznick’s JZ Capital Partners, it ranks as one of the biggest land purchases in New York City during the pandemic.
The ASX listed global player had signalled it would significantly ramp up its real estate development activities around the world.
It already has major urbanisation projects across the US, including a build-to-rent development also backed by Aware Super in Chicago.
There is also a plan for housing development on Google-held land in Silicon Valley.
It takes its US development pipeline to over $30 billion of current and future projects, Denis Hickey, chief executive for Lendlease’s Americas business advised.
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Aware is the rebadged Australian super fund, First State Super.
Lendlease takes control of the Java Street site from London-listed investment house JZ Capital Partners and development vehicle RedSky, which will retain 10 per cent.
 
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j.ballantyne1990-6AQqhLzZaK

Lendlease plans $1 billion Brooklyn, New York build-to-rent project

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Greg The Shark Norman is again trying to sell his US ranch retreat, and he's shaved US$15 million ($AUD23 million) off its last price tag.
The Seven Lakes Ranch in Colarado's White River Valley on the Flat Tops Mountains has been a retreat for the Norman's for over two decades, transforming it from a corporate retreat to a family getaway.
Norman visited the area for a client who wanted to build a golf course on his property nearby.
He fell in love with the area and bought Dry Creek, before extending the holding over the years by adding neighbouring properties which included Seven Lakes Lodge, bought from billionaire businessman Henry Kravis.
The grand ranch home, built by logs trucked in from Montana, spans 1,300 sqm and has nine bedrooms and an authentic saloon. 
Norman said he had loved taking in the tranquillity and peace of the Colorado Rockies.
His favourite room inside the ranch is the bar.
Norman has welcomed the late George H.W. Bush stay in their executive cabin, one of seven guest cabins on the 4815 hectare property. 
The listing agents Hall and Hall call the property a true sporting paradise, regarded as one of the finest trophy big game hunting and fishing ranches in Colorado.
The Sharks base is some 2,900 kilometres away in Florida's Jupiter Island, roughly the same distance from Sydney to Cairns.
He's now seeking US$40 million (AUD$62 million), down from the US$55 million (AUD$85 million) he asked in 2017.
2017 was also the year Norman hinted at a potential return to Australia.
When speaking to News Corp he said he would love to live on a vineyard.
"I would love to go back and have a place there," Norman said.
"I would love to have a vineyard.
"I don't know where; I love Margaret River, I lose the Barossa Valley, the Yarra Valley, the Hunter Valley."
His wife however, Sydney interior designer Kirsten Kutner, is a self-declared beach girl.
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firstname1-iYD4UYzvBa

Greg The Shark Norman again lists US ranch retreat slashing price tag

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Australian residential developer Crown Group has taken the next steps in its first move into the US market, where it plans to develop a US$500 million mixed-use high-rise condominium and hotel tower. 
Crown Group is progressing entitlements with Los Angeles City Hall for the proposed tower, which is earmarked for the southeast corner of South Hill and 11th streets at the convergence of Downtown’s financial, fashion and South Park districts.
Crown Group has formed a joint venture with a Singapore based company called Magnus Property Pte Ltd and one of Indonesia’s biggest property developers, ASRI.
The joint venture group settled on the Downtown site in November 2019.
The 43-storey tower has been designed by renowned Koichi Takada Architects and the project at 1111 Hill Street is expected to be completed in 2024.
The high-rise sections of the building will comprise 319 condominiums with an exclusive residents’ retreat over the top two floors and a façade design that references California’s gigantic ancient redwood trees.
Crown Group’s LA office is also in discussions to perhaps incorporate a 160-key hotel in the low rise of the building.
Crown Group CEO Iwan Sunito said the flourishing Downtown district of LA had experienced a significant transformation over the past decade. This is evidenced by LA Live’s expansion, Warner Music and Spotify establishing offices, headline retailers such as Apple, Vans and Paul Smith launching flagship stores, a bevy of iconic restaurants opening venues and numerous residential, hotel and commercial developments underway.
Crown Group Head of US Development Patrick Caruso said the development would offer an appealing point of difference for buyers in Downtown LA and bring a new version of condominium living to the district.
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Crown Group secures land for its first USA project

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US Federal Reserve's continued rate hikes, what does that mean for Australia? Shane Oliver

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EXPERT OBSERVER
Since Donald Trump was elected President back on November 8, 2016 we have focused on whether we will see Trump the rabble-rousing populist or Trump the business-friendly pragmatist.
Despite lots of noise – particularly via Trump’s frequent tweets – for the most part Trump the pragmatist has dominated so far.
But we have clearly seen a swing to Trump the populist this year – raising risks for investors.
So far Trump has been good for markets In the period since his election US shares are up 34%, global shares are up 28% and Australian shares are up 21%.
While the strength in share markets would have occurred anyway given stronger global growth, US tax reform, fiscal stimulus and deregulation have clearly helped and contributed to the US share market’s outperformance.
While US tax reform and tax cuts have received much focus, the Trump administration’s focus on deregulation is equally as significant with the US under Trump seeing the least amount of new economically significant regulation since the Reagan Administration in the early 1980s. 
In terms of tax reform and deregulation the Trump Administration has much in common with Reaganomics.
Populism starting to dominate pragmatism
This year though the balance has shifted towards a greater emphasis on populist policies – notably protectionism and criticism of China, the return to sanctions on Iran and arguably recent criticism of the Fed for raising interest rates and pushing up the US dollar.
There are several reasons for this shift in emphasis: the pro-business element of Trump’s policies were mainly completed last year; it’s a mid-term election year so Trump is back in campaign mode; Trump’s approval rating has improved despite this year’s controversial policies suggesting firm support for them from his Republican party base; and the strength of the US economy has also emboldened him.
In fact, it could be argued that last year was all about bolstering the US economy ahead of this year’s more controversial policies.
The main risks around President Trump centre around five key issues: the rising risk of a full-blown trade war; the expanding budget deficit; the risk of interference in the Fed; the return of sanctions on Iranian oil exports threatening wider Middle East conflict; and the risk Trump ultimately comes into trouble with the Mueller inquiry.
We will now look at each of these in turn.
Rising trade war risks
This issue has been done to death but won’t go away.
So far the tariff increases actually implemented amount to just 3% of total US imports.
While this has been met with proportional retaliation by other countries it’s a long way from a full-blown global trade war.
However, the issue is what happens next.
Another $US16bn of Chinese imports will likely be hit with a 25% tariff soon and the US is readying a 10% tariff on another $US200bn.
Trump is also threatening to raise tariffs on all $US550bn of Chinese imports.
China is threatening to retaliate proportionally although it will have to be with other means as it only imports $US130bn from the US.
Trump is also threatening to put tariffs on auto imports and looking at Uranium.
News of a deal between the US and the EU to work towards zero tariffs on industrial goods is good news in terms of heading of a full-blown trade war between the two, but negotiations have a long way to go.
There was hope of a deal with China in May – with Trump initially crowing about a May 20 trade deal, but since then both China and the US have dug in with Trump tapping popular support for protectionism and anti-Chinese sentiment.
So, the trade threat could get still worse before it gets better which means it risks taking the edge off economic growth.
Modelling by Citigroup of a 10% tariff hike by the US, China and Europe showed a 2% hit to global GDP after a year.
Of course, we are not seeing a tariff hike on all goods but the impact could still be significant if negotiations with the EU and China fail and all the tariffs being talked about are implemented.
There are a few offsetting factors.
First, China is moving to provide stimulus to support growth.
Second, much of Trump’s approach still looks designed to apply “maximum pressure” to reach a negotiated outcome – and so far so good in relation to Europe.
And Trump knows that the costs to US workers (from soybean farmers to Harley Davidson workers) and consumers will escalate as more tariffs are imposed.
So, our base case remains that some form of negotiated solution will be reached, but in relation to China this may not occur until next year.
Interference in the Fed and US dollar Trump’s recent comments criticising Europe, China and others for helping drive the US dollar up and the Fed for raising interest rates naturally raises concerns that he will intervene in foreign exchange markets and interfere with the Fed.
The comments lack economic logic – if “making America great again” means stronger US economic growth then it also means higher US interest rates and a higher US dollar – and maybe the Fed came in for a serve after Fed Chair Powell observed that “countries that have gone in a more protectionist direction have done worse”!
Trump’s annoyance may have been triggered by the slide in the value of the Chinese Renminbi.
While this looks to be mainly a strong $US story (as the $US is up around 7% against its low earlier this year against a range of currencies compared to an 8% gain against the Renminbi) the Chinese authorities seem quite content to let it fall for now and this will obviously offset Trump’s tariffs on Chinese goods.
Despite all this it’s unlikely in the short term that Trump will act on his opinions on rates and the $US.
US Treasury Secretary Mnuchin said the administration would “not interfere with the decisions of the Fed or move to manipulate the value of the dollar.” Trump is well known to be a high debt/low interest rate guy so it’s no surprise he is not happy with rising rates.
But the Fed answers to Congress, has a mandate to keep inflation down and will do what it sees best – which with strong growth and at target inflation means returning interest rates to more normal levels.
However, longer term there is a risk that Trump will weaken the institution of an independent central bank targeting low inflation and may also seek to return to a more interventionist approach regarding the US dollar, particularly if America’s trade deficit refuses to fall.
Based on past experience such political intervention would risk much higher inflation which would be a big negative for investment assets as the revaluation that occurred as we moved from high inflation to low inflation would reverse.
Fortunately, we are not there yet.
 The expanding US budget deficit
It’s been the norm for the US budget deficit to blow out when unemployment rises (as tax revenue falls and jobless claims go up) and decline when unemployment falls.
Thanks to Trump’s fiscal stimulus it’s now blowing out when unemployment is collapsing and looks to be on its way to 5% of GDP.
This raises three risks. First, it may mean higher than otherwise interest rates and bond yields as the Fed may have to raise rates more than would otherwise be the case to stop the economy overheating and the Government’s competition for funds results in higher bond yields. 
So far there is not a lot of evidence of this with US bond yields remaining relatively low – presumably held down by low global bond yields and trade war fears – but its still a risk as US inflationary pressures rise.
Second and more fundamentally it begs the question of debt sustainability when the next recession arrives given US public debt is already around 100% of US GDP.
Finally, US fiscal stimulus by adding to the US savings-investment imbalance is adding to the US trade deficit and so is completely inconsistent with his trade policies.
Even if there was a completely level playing field on world trade America will still have a trade deficit!
The return to sanctions on, and tensions with, Iran Perhaps a big surprise this year for some has been that President Trump looks to have swapped a half decent deal with Iran for a dodgy one with North Korea.
While the latter holds out the hope of (maybe) reducing the threat of a nuclear attack on the US, the return to sanctions and tensions with Iran risks higher oil prices. S
ince the lows of 2015 oil prices have increased by 70% reflecting increased demand and OPEC’s 2016 cutback.
Global stockpiles and spare capacity have been rundown and supply from Libya and Venezuela is uncertain.
Our base case is that demand growth will be more constrained from here and that a ramp up in US shale oil production will help contain oil prices around $US70-75 a barrel.
The risk though is that the loss of around 800,000 barrels a day of Iranian oil exports and the renewed risk of wider conflict in the Middle East associated with Iran (eg, if Iran closes the Strait of Hormuz through which 20% of global oil supply moves in retaliation against US sanctions) results in higher prices.
The Mueller inquiry into Russian links
Our view in relation to the Mueller inquiry remains that unless Trump has done something very wrong the Republican controlled House will not move to impeach him and even if a Democrat controlled House post the mid-terms did, the Senate will not have the necessary two thirds of votes to remove him from office.
However, his sensitivity over the issue, along with his comments seemingly favouring Russian President Putin’s word over US security agencies does remind a bit of Nixon in relation to Watergate.
So his removal cannot be ruled out.
But this would just mean VP Mike Pence would take over with basically the same economic policies (but with less tweet noise) and economic conditions are stronger than in 1974.
Trump tweet noise
The risks around Trump are real and need to be watched carefully.
But Trump generates a lot of noise and much of it is contradictory and confusing – in the last week Trump tweeted “Tariffs are the greatest” only to tweet 12 hours later that “I have an idea for them. Both the US and EU drop all tariffs” – and often reflects bluster ahead of negotiations – recall his “fire, fury and frankly power” threat to North Korea.
So the best approach for investors in relation to Trump is to turn down the noise.
Dr Shane Oliver is the Head of Investment Strategy and Chief Economist for AMP Capital
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Trumponomics: Shane Oliver

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Actor George Lazneby, Australia's very own James Bond, is selling his US mountaintop estate in California.
He's asking for $3.49 million for the <a href="https://www.coldwellbankerhomes.com/ca/pearblossom/30066-longview-rd/pid_24598109/" target="_blank">1950s ranch homestead on 200 hectare at Pearlblossom</a>, which is in the Antelope Valley of the Mojave Desert, in northern Los Angeles County.
The property is split up in to 12 parcels. Lazenby started collecting the adjoining parcels four decades ago after neighbours complained about his motorcycle riding. 
<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/2018/5/28/lazenby2.jpg" alt="">
Lazenby was famous for following in Sean Connery's footsteps as 007 when he played the English spy in the 1969 film On Her Majesty's Secret Service.
The Queanbeyan-born actor had already stepped aside from the role before the premiere.
It's been four years since Lazenby had Sydney property, selling a Mosman house for $2.9 million.
It was co-owned with his now former wife, US tennis star Pam Shriver.
With family on the north shore, for many years he owned a Cammeray waterfront home which sold for $2,253,281 in the late 1980s.
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Lazenby has credits that include Universal Soldier (1972), The Dragon Flies (1975) and Gettysburg (1993)and last year he appeared in the direct-to-video thriller Death Game.
This article first appeared in the Sunday Telegraph.
 
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Australia's own James Bond lists California mountaintop estate

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As widely expected, the Fed increased the target range for the federal funds rate by 0.25 per cent to 1.50-1.75 per cent. This was the sixth increase in interest rates of the current monetary policy tightening cycle.  The decision by the Fed voters was a unanimous 8-0.
US interest rates higher than the Aussie cash rate: The federal funds target rate is higher than the Reserve Bank’s official cash rate of 1.50 per cent for the first time in over 17 years. 
US interest rate outlook: The Fed is forecasting two further rate increases in 2018 and three further hikes in 2019. The 2020 projection is for two interest rate hikes. 
US economic outlook revised higher: Economic growth (GDP) forecasts were increased to 2.7 per cent in 2018, up from the previous forecast of 2.5 per cent. The 2019 forecast was moved higher to 2.4 per cent, up from 2.1 per cent previously. Growth is projected to decelerate to 2.0 per cent by 2020.
US at full employment: The unemployment rate is expected to fall to 3.8 per cent in 2018, down from 3.9 per cent in 2018. The unemployment rate is expected to fall further to 3.6 per cent in 2019-2020.
Inflation to reach target in 2019: Inflation is expected to remain below the Fed's 2 per cent target this year at 1.9 per cent. But the Fed expects the core Personal Consumption Expenditures (PCE) deflator (inflation) to increase to 2.1 per cent, above previous projections for 2.0 per cent in 2019 and 2020. 
Changes in US monetary policy settings can affect rates in Australia as well as the sharemarket and currency.
Click here <a href="https://www.propertyobserver.com.au/images/2018/3/22/RATES1.jpg" target="_blank">to enlarge.</a>
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<h1>What happened and what does it all mean?</h1>
The US central bank, the US Federal Reserve, increased the target range for the federal funds rate by 0.25 percentage points to 1.50-1.75 per cent, as expected. More interest rate increases are forecast due to the improving economic outlook. 
The US unemployment rate is at a 17-year low. Now US interest rates have increased above Aussie interest rates for the first time in over 17 years.
The last time the US federal funds target rate was above the Reserve Bank’s official cash rate was December 2000. US interest rates were higher than Aussie cash rates for the period July 1997 – December 2000. How the world has changed since then. 
Click here<a href="https://www.propertyobserver.com.au/images/2018/3/22/INFLATION2.jpg" target="_blank"> to enlarge.</a>
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Back in those days the cash rate in both countries was well above 6 per cent and the Aussie dollar slumped to just US48 cents in early 2001.
Fast forward to 2018 and the Aussie economic expansion is now into a record 27th year, while the slow-but-steady increase in US output is into its ninth year. Should the US expand for another year, it will exceed the 10-year economic boom of the 1990s – the last time US interest rates were higher than their Aussie counterparts.
<h1>US Federal Reserve decision</h1>
Today’s decision by the US Federal Reserve was well telegraphed and uniformly expected by financial markets. The gradual tightening of monetary policy and removal of stimulus continues in the new Jerome Powell era. 
It was just three weeks ago that influential Federal Reserve Board Governor Lael Brainard spoke at Harvard University and opined: “Mounting tailwinds at a time of full employment and above-trend growth tip the balance of considerations. With greater confidence in achieving the inflation target, continued gradual increases in the federal funds rate are likely to be appropriate.” 
Since then the US labour market has continued to strengthen. Consumer sentiment has hit new post-Global Financial Crisis highs and core inflation, while still below the Fed’s 2 per cent target, has lifted sequentially. The Fed’s preferred measure – core PCE inflation – is now a quarter percentage point higher in annualised terms than its low in mid-2017.
Retail sales and housing data has been weak at the beginning of 2018, but the US Federal Reserve has decided to look through this data and potentially a weaker March quarter economic growth print.
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In terms of the Federal Open Market Committee’s (FOMC) press release, the FOMC reiterated that future interest rate adjustments will be data dependent and that “economic conditions will evolve in a manner that will warrant gradual increases in the federal fund rate”. The FOMC acknowledged that the “economic outlook has strengthened in recent months.” Inflation is expected“to move up in the coming months”. And “job gains have been strong in recent months, and the unemployment rate has stayed low”. Though household spending and business investment “have moderated” from late last year.  
The median path for the fed funds rate was changed in 2019-2020. The FOMC’s Summary of Economic Projections shows the median interest rate projections (the “dot plot”) still implies two further 0.25 per cent interest rate increases in 2018 (to 2.125 per cent); three 0.25 per cent interest rate increases in 2019 (to 2.875 per cent); and two 0.25 per cent interest rate increases in 2020 (to 3.375 per cent).
The policy-relevant core PCE deflator inflation projection were little changed. Core PCE inflation is still expected to run at 1.9 per cent in 2018. The FOMC lifted its core PCE forecast by 0.1 per cent to 2.1 per cent in 2019 and 2020.
The FOMC upgraded its GDP forecasts and lowered its unemployment rate projections. The FOMC projects GDP growth of 2.7 per cent in 2018 (previously 2.5 per cent) and 2.4 per cent in 2019 (previously 2.1 per cent). Meanwhile, the FOMC expects the unemployment rate to be 3.8 per cent in 2018 (previously 3.9 per cent) and 3.6 per cent in both 2019 (previously 3.9 per cent) and 2020 (previously 4.0 per cent).
The Fed continues to unwind its huge balance sheet. Holdings have declined to around US$4.4 trillion, the lowest since September 2014. The Fed plans to shrink the balance sheet by US$10 billion per month then accelerate the pace of reduction every three months. Eventually, holdings will be reduced by around US$50 billion per month until a “new normal” balance sheet holding is achieved. Fed Chair Jerome Powell has estimated that the balance sheet could drop to US$2.4-US$2.9 trillion after several years of cuts. 
US sharemarkets reacted positively initially to the well telegraphed outcome - especially given a fourth rate hike was not added in 2018 - with the Dow Jones Industrial Index briefly trading higher 250 points. However, shares declined into the US market close on weaker sentiment. Investors would be comforted that the FOMC largely left its interest rate outlook unchanged and US economic projections are stronger. US 10-year Treasury yields rose to 2.91 per cent before rallying back to 2.88 per cent. The US dollar fell and the Aussie dollar rallied from overnight lows near US76.70 cents and was near US77.66 cents in late US trade.
<h1>What are the implications for interest rates and investors?</h1>
The US economy is in rude health. We expect growth to remain above potential at around 2.8 per cent this year – the fastest pace of growth following the Global Financial Crisis.
Despite recent sharemarket volatility, financial conditions are still very accommodative and supportive for growth. The University of Michigan current economic conditions index for March was at record high (since 1978).
The Trump Administration’s fiscal expansion will likely lend support to late cycle US economic growth. The ‘leg-up’ from US$1.5 trillion worth of corporate tax cuts and additional government spending of around US$10 billion per year on infrastructure is expected to add around 0.5 percentage points to growth in 2018. Robust business investment and consumer spending, and a soft US dollar are additional growth sources. 
One of the challenges for Fed policy makers this year is to determine the full impact of the Trump tax-cut plans. The recent fiscal stimulus has probably not been fully baked into economic forecasts. And with US output and the labour market at near full capacity, concerns are building about an overheating economy.  
Click here<a href="https://www.propertyobserver.com.au/images/2018/3/22/BEST4.jpg" target="_blank"> to enlarge.</a>
<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/2018/3/22/BEST4.jpg" alt="">
The Fed will also be contending with a deteriorating US budget deficit and government debt situation. The US posted its largest budget deficit in six years in February at US$215 billion. And the deficit for the fiscal year that began in October 2017 widened to US$391 billion compared with a US$351 billion shortfall the same period a year earlier. The US gross government debt load has breached US$21 trillion or 106 per cent of GDP.
US President Trump’s tax policy is expected to reduce US federal revenue by more than US$1 trillion over the next decade, while a US$300 billion spending deal reached by the US Congress in February could push the deficit higher. So the corporate tax cuts will be funded by an increase in the US budget deficit, resulting in an increase in the issuance of US Treasury bonds. 
And the Fed’s interest rate hikes will likely expand the budget deficit even further by raising the Trump Administration’s cost of issuance, thereby further increasing the supply of US Treasuries. Rising supply, especially shorter dated bills, is already weighing on fixed income markets. And around US$425 billion of bonds will be maturing this year with the Fed only reinvesting US$195 billion of this amount. Who will pick up the shortfall?
If the Fed meets market pricing expectations for potential interest rate hikes, it will probably succeed in flattening the yield curve further – especially with the term premium curve flat already – then more likely we’ll see further episodic market volatility. 
With inflation running below 2 per cent, doubts over the Fed’s forward guidance will persist. However, base effects from wireless phone services’ price discounting, potential US dollar depreciation, tighter labour markets and a closing output gap should push annual inflation higher from mid-2018. 
Overall, we see the US economy growing above potential, supported by fiscal stimulus, still-low inflation and synchronised global growth. US President Trump’s policies, especially around trade, are the major ‘wildcards’. However, Fed Chair Jerome Powell said that US trade policy should not affect the economic outlook.    
CommSec expects two further US interest rate hikes in June and September this year.
Ryan Felsman is a senior economist at CommSec.
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jrobinson-rf4aSBido9

US interest rates break 17-year drought: CommSec

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A new report from US property giant Zillow reveals that Australia’s property obsession extends all the way to the USA.
Zillow calculates more than one million Australians are looking at American real estate on Zillow annually.
Beverly Hills (above) is among the most searched cities, with Los Angeles the most searched region.
Eight of the top 10 most popular U.S. cities for Australian home searches are in the state of California. 
<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/2018/1/25/zillow%201.jpg" alt="">
Zillow noted the United States has its own housing affordability challenges, but at a much low median home price of around A$265,696 ($203,400USD)
"Home prices are on the rise in almost every major metro area, and in many markets, buyers are facing stiff competition and bidding wars," the Zillow report advised.
California’s economy is about twice the size of Australia’s, so buying a home in a hot California market can come with a significant price tag.
The median price point for Australian home searches on Zillow is A$704,070 AUD ($539,000USD) with the chances of finding a home within that price range in desirable California cities ranked as slim, especially since, according to Zillow’s data, Australians are primarily interested in standalone U.S. homes.
Up-and-coming metros like Las Vegas, Seattle and Portland, Oregon are gaining attention from Australians. In the Las Vegas metro, the median home costs A$309,320 ($236,800 USD) and is expected to rise another 5.8 per cent in value over the next year.
The Los Angeles metro has a median home price of A$804,389 ($615,800 USD) and is expected to gain just 1.1 per cent in value next year.
 
<img src="https://www.urban.com.au/images/2018/1/25/zillow%202.png" alt="">
There are currently almost 100,000 Australians living the U.S., according to The U.S. Census Bureau. The 2016 Australian Census saw net overseas migration (NOM) departures reach 312,200 people from 31 December 2015 - 31 December 2016, an increase of 3.7 per cent year-on-year.
Launched in 2006 and headquartered in Seattle, Zillow is owned and operated by Zillow Group with shares trading on the NASDAQ.
Shares of Zillow Group are currently trading at around US$44. The market cap is US$5.47 billion.
Caledonia Investments, the Australian investment firm run by Will Vicars owns around 22% in US online real estate market leader. Will Vicars was instrumental in James Packer's original $300 million investment in the US stock in 2013, with the equity now held by his sister, Gretel Packer. 
 
 
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