What Investors Want To Know - 6 November 2024

Official Cash Rate:

At 2:30 pm yesterday's RBA board meeting, consistent with the opinion of the majority of forecasters, the Reserve Bank of Australia announced a HOLD in the Official Cash Rate at 4.35%.

The Reserve Bank no longer meets on the first Tuesday of each month, which was a total of 11 times per year. The RBA has now selected more opaque eight times per year excluding the months of April, July, and October.

Big News on Investment Portfolios:

Investors seek to avoid volatility, but being invested in the market over the long term is the best predictor of investment success. Upcoming events, like U.S. Presidential elections, can heighten volatility. A diversified portfolio is crucial for managing these investment market uncertainties.

With the U.S. Presidential election approaching, historical data indicates increased market volatility during elections. It has been a year since the last 10.0% market correction, suggesting that turbulence might be imminent, though the future is unpredictable.

Research shows that investment returns are more influenced by time in the market than by political affiliations.

Investing requires patience for a portfolio to grow. Waiting for a perfect moment to invest more often than not, results in missed opportunities. Interestingly, markets tend to perform best during periods of pessimism. Therefore, even if you have concerns about U.S. stocks due to politics or market conditions, maintaining a resilient and diversified portfolio is the key. And if you are trying to invest along political party lines, historical trends show that markets tend to grow under both Democratic and Republican leadership, though future volatility cannot be ruled out.

The best approach to navigating uncertainty is to focus on a diversified, value-driven investment strategy.

Big News on Inflation:

In Australia, headline CPI inflation fell back into the RBA’s target band at 2.8% year-on-year for the third quarter. However, the RBA’s preferred inflation metric, the Trimmed Mean, remains at 3.50% year-on-year, which remains high, prompting a cautious approach from the RBA. The difference between the Trimmed and Headline inflation rates highlights the effect of government energy subsidies and is arguably a reason why the RBA will overlook the decline in Headline inflation. Nevertheless, even when factoring in the distortions caused by these subsidies, it shows progress on inflation. The proportion of the inflation basket experiencing growth above 3.0% is decreasing, indicating that the more persistent elements of inflation are beginning to subside. 

Since the end of the COVID-19 pandemic, the RBA has raised rates by 425 basis points, less than many other central banks, partly to support job creation. The unemployment rate has remained steady between 4.0% and 4.2% since April. Given the strength of the employment market and a relatively lower peak in rates, the RBA is likely to take a slower approach to easing compared to its developed nation counterparts.

In the U.S., Treasury yields initially tumbled after U.S. jobs data for October showed the U.S. economy barely added 12,000 jobs in October, falling well short of economists’ expectations for 100,000 job gains. Although the weaker-than-expected jobs report was heavily disrupted by industrial action and hurricanes. The big miss on the October jobs report put bets on the Federal Reserve rate cuts in the upcoming two meetings firmly back on the table, dispelling concerns that the recent bout of strong economic data would force the central bank into a pause.

However, the U.S. unemployment rate held steady at 4.1%, offering assurance that the labour market remained on a solid footing.

Big News for House Prices:

 While this is not one of our favourite indices due to the general inconsistency of accuracy in its prediction, the Home Value Index (“HVI”) published by CoreLogic increased by +0.3% in October, marking 21 consecutive months of growth since February last year. This slight rise was mainly driven by mid-sized capitals, particularly Perth, which saw a +1.4% increase. However, other cities like Darwin, Canberra, Melbourne and Sydney experienced declines

Annual growth rate for national home values has eased to +6.0% as of October, down from a peak of +9.7% in February. Sydney recorded its first monthly drop since January 2023, with values falling -0.1%. This follows a significant -12.4% decline from February 2022 to January 2023.

Luxury properties saw a -0.6% decline over the month, while lower-tier homes in Sydney gained +0.5%.

Tim Lawless from CoreLogic noted that more affordable housing segments are performing better due to decreased borrowing capacity and a higher percentage of investors and first-time buyers. The lower quartile has either grown faster or declined less than the upper quartile in most capitals.

While mid-sized capitals like Perth continue to lead in growth, their momentum is slowing. Perth's growth rate is lower than earlier this year, and Adelaide's increase is the smallest since June. Brisbane’s growth also slowed to +0.7%.

The increase in available homes for sale has risen by +12.7% across major capitals since winter, with Perth seeing a significant rise of +20.6%. Sydney and Melbourne listings are also above their five-year averages, contributing to softer market conditions as buyers have more choices.

Despite the higher listings, Perth, Adelaide, and Brisbane remain below their five-year average stock levels, still favouring sellers but with a gradual shift toward more balanced conditions. Home sales are declining, with a -7.5% drop in the last three months and a -1.6% decrease compared to the previous year. Auction clearance rates stayed below 60%, and properties are taking longer to sell, especially in cities with higher inventory levels.

To the share markets:

Locumsgroup’s tailored investment portfolios are structured to suit each of our clients’ unique risk profiles; this is achieved using Nobel Prize-winning investment technology developed by Professors Fama and French of the Chicago Booth School of Business.

Our clients’ portfolios are designed to capture the dimensions of returns generated in the Global Capital Markets.

The US markets slipped on election eve, with S&P 500 down -0.3%, NASDAQ down -0.3% and Dow Jones down -0.6%.

European markets mostly fell overnight, with the Stoxx Europe 600 down -0.5%, and German DAX down -0.6%, but U.K. FTSE 100 up +0.1%.

In contrast the S&P/ASX 200 increased by +0.6% and All Ordinaries increased by +0.5%.

To currencies:

The Aussie dollar hit US65.83 cents up from its previous close of US65.58 cents. High for the year was US69.19 cents.

To Global Oil:

The Brent crude was up +3.1% to US$75.35 a barrel. This figure is down from the high of US$112.24 in June 2022.

To Iron Ore:

The Iron Ore price was up +0.14% to US$103.91. This figure is down from the high of US$214.43 in June 2021.