What Investors Want To Know - Locumsgroup

24 September 2024

Official Cash Rate: At 2:30 pm today'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: As the U.S. Presidential election approaches, many investors are feeling apprehensive about the markets. There is extensive discussion on how the candidates' policies could affect the U.S. economy, which in turn could impact the stock and bond markets, including in Australia. 

Rusted on: 

Currently, according to the pundits, the election is too close to predict. Donald Trump has led in national votes, but Kamala Harris is gaining traction within the Democratic Party, with some polls showing her slightly ahead. The election's outcome will likely depend, as is the usual case, on a few key swing states. You basically have rusted on Democrats and rusted on Republicans! 

For Australian investors, if Harris wins, U.S. policies are expected to remain consistent with the last four years, especially regarding support for Ukraine and relations with China. In contrast, a second Trump term could lead to significant global policy shifts, including pressure on NATO, protectionist trade measures, and a more hands-off approach to global conflicts, potentially impacting U.S. inflation and the U.S. dollar. 

AUKUS: 

Regardless of the outcome, the AUKUS security partnership could also be affected, impacting Australia's economic ties with China, its largest trading partner. If the Democrats win, the Federal Reserve is likely to stay independent, whereas Republicans might seek to lower regulations and reduce the Fed's political influence, leading to mixed effects on the markets.

It is essential to note that a President's power is constrained by Congress, and the current Senate and House elections are just as competitive, making it difficult for any President to fully execute their agenda. We march on relentlessly: Ultimately, while investors often seek a link between election outcomes and market performance, historical data shows that stock prices generally increase over time, regardless of political changes. Investors are advised to focus on long-term strategies rather than the short-term political noise and market fluctuations. Successful investing emphasises the importance of time in the market rather than trying to time the market.    

Big News on Inflation: The US Federal Reserve recently initiated its rate-cutting cycle with an unanticipated 50-basis point reduction las week, focusing on supporting a softer jobs market. In contrast, Australia's job market remains robust.

While Australia added 49,000 jobs in August—more than expected—the unemployment rate barely changed due to an increase in labour supply rather than a significant drop in demand for workers. 

The participation rate is at a record high, indicating more people are employed. While forward-looking indicators such as employment intentions and vacancy rates suggest future slowdown in job growth, there is no indication of an immediate need for the Reserve Bank of Australia to cut rates to support the job market as the Fed is doing. Moreover, inflation in Australia slowed to 3.5% in July, but was still above the Reserve Bank of Australia’s 2.0% to 3.0% target range. 

Big News for House Prices: According to CoreLogic, national home values rose by +0.5%, marking the 19th month of consecutive increases, though growth is clearly slowing down. The quarterly growth rate has fallen to +1.3%, significantly lower than the +2.7% increase last year. While demand exceeds supply overall, regional disparities exist, with Melbourne seeing a +25.0% rise in listings, while Perth and Adelaide have dropped over -40.0%. 

Monthly growth was strongest in Perth (+2.0%), followed by Adelaide (+1.4%) and Brisbane (+1.1%). In contrast, cities like Canberra and Melbourne experienced slight declines. Affordability issues and high interest rates are contributing to this slowdown in growth. The most affordable homes are seeing better performance, with values up +2.7% compared to a +0.3% increase in pricier segments. Perth's median dwelling value has surpassed Melbourne’s for the first time since 2015. Melbourne's home values have decreased for six months, partly due to increased taxes on investment properties. Hobart and Canberra are also experiencing declines, influenced by weak interstate migration. 

Rent growth has also stalled, with national values increasing only +7.2% over the past year, the slowest rate since May 2021. This is attributed to declining migration and rising household sizes as more people share living spaces. 

Looking ahead, modest home value increases are expected through late 2024, driven by supply constraints. However, high living costs are limiting buyer interest, particularly among those with median incomes. As the spring selling season begins, sellers should consider local market conditions carefully. 

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 rose modestly overnight, with S&P 500 up +0.3%, NASDAQ up +0.1% and Dow Jones up +0.2%. 

European markets also rose overnight, with the Stoxx Europe 600 up 0.4%, German DAX up +0.7% and U.K. FTSE 100 up +0.4%.In contrast the S&P/ASX 200 decreased by -0.7% and All Ordinaries decreased by -0.6%.

To currencies:The Aussie dollar hit US68.33cents up from its previous close of US68.06 cents.

To global oil:The Brent crude was down -0.8% from US$74.50 to US$73.90 a barrel. This figure is down from the high of US$112.24 in June 2022.

To Iron Ore: The Iron Ore price was down -0.11% from US$92.03 to US$91.93. This figure is down from the high of US$214.43 in June 2021.