Newsletter

Tepid Inflation, Fuel Price Spike, Record House Prices & April Market Wrap!

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Fed Upgrades Outlook as Further Stimulus Flows

Federal Reserve officials strengthened their evaluation of the economy on Wednesday while leaving their key interest rate near zero and maintaining a $120 billion monthly target for asset purchases.

Following the conclusion of its two-day policy meeting the Federal Open Market Committee (FOMC) set out that, “Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened,”. “The sectors most adversely affected by the pandemic remain weak but have shown improvement. Inflation has risen, largely reflecting transitory factors.”

This week also saw President Biden make his first address to a joint session of Congress, just before his 100th day in office and he declared that “America is on the move again”.

The president touted his administration’s response to the Covid-19 pandemic, the fact that 220 million Americans have now received vaccinations and the economic stimulus package that the White House steered through Congress along party lines earlier this year.

But he made it clear that he is not stopping there, proposing a $1.8 trillion package for families and education. That is in addition to his $2.25 trillion infrastructure proposal and the $1.9 trillion pandemic relief package he signed into law last month.

What is possibly most noteworthy is that we now treat the news of the latest multi Trillion-dollar package as quite mundane. We certainly live in interesting times.

 

Sydney’s Median House Prices hit $1.3m

A steep acceleration in price growth, mostly driven by higher-end homes, has seen Sydney’s median house price soar to a new record of over $1.3 million.

Massive quarterly gains in the eastern suburbs, Northern Beaches, Baulkham Hills, and the Hawkesbury Region are the core drivers behind the quarterly median price rise of over $100,000. On a twelve-month basis, Sydney house prices have jumped 12.6% to $1,309,195.

Speaking to ABC in relation to the latest results, Domain’s Senior Research Analyst, Nicola Powell said “It’s the fastest acceleration of house prices over a single quarter since Domain records began in 1993,”. “Previously we’d seen very much the low end of the market supporting price growth … now we’re starting to see the upper end of the market is leading.”

The median house price of more than $1.3 million is also backed up by research firm SQM. Their managing director Louis Christopher said it had been an “extraordinarily” strong quarter driven by a multitude of factors, particularly government stimulus,”. “From the outset of this current recovery and effectively, current housing boom, there’s been great demand for freestanding houses. “People have been looking for larger properties because they’ve been working from home, and that trend is still with us.”

While many homeowners cheer the news of strong growth, the cost of upsizing could prove difficult for many buyers. We also sympathise with the long-suffering prospective first home buyers who face an increasingly steep challenge of saving for their deposit.

 

April Market Wrap

April has been a great month for shares. With one trading day remaining, the Australian market looks like it will close 4% higher than the end of March and the US market around 6% higher. The S&P 500 closed at a record high last night after strong earnings results from US companies.

Over 80% of companies in the S&P 500 beat their earnings expectations, including the tech giants, Apple, Amazon, Facebook, and Microsoft.  On the economic front, the US reported positive economic growth in Q1, with GDP rising 6.4%. However, the recession is not officially over because GDP as an absolute dollar amount has not recovered completely to pre-pandemic levels.

 

Modest March CPI Despite Fuel Price Spike

The nation’s leading measure of inflation grew modestly in the March quarter and is expected to remain below the central bank’s target band for some time. The Consumer Price Index (CPI) surprised with a smaller than expected rise of just 0.6% after a 0.9% increase in the December quarter.

That took the annual rate to 1.1%, according to the latest inflation report from the Australian Bureau of Statistics (ABS). That is a long way from the Reserve Bank’s historical 2% to 3% inflation target over time, let alone the new one which calls for inflation to be in the 2% to 3% range (on an underlying basis) for a long period of time.

The weak result for the quarter came despite an 8.7% jump in petrol prices. ABS head of price statistics Michelle Marquardt said, “Higher fuel prices, compared with the low prices seen in 2020, accounted for much of the rise in the March quarter CPI,”. A 7.3% rise in prices for accessories reflected high consumer confidence and demand for discretionary items such as jewellery.

It has been over five years since annual inflation had been within the RBA’s target range and we are still a long way from that mark. We are experiencing continued improvement in the economy and a tightening job market which could eventually push prices higher.

The key question is, will the Reserve Bank be able to maintain its resolve to keep the cash rate at record lows until 2024? We are not so sure.

 

The Pandemic Games

With 84 days until the opening of the Olympic Games, and 116 days until the opening of the Paralympic Games, the International Olympic Committee (IOC) this week unveiled the second version of the playbook for athletes and officials, which outlines the rules participants at the Games must adhere to.

Organisers have confirmed all athletes will be tested daily as part of coronavirus countermeasures set to be in operation. Athletes who test positive will be prevented from competing at the Games and have been warned that a failure to comply with the measures could result in being stripped of their accreditation.

The IOC has vowed to “ensure no-one is excluded from the Games” because of false positives – where a test incorrectly shows someone has the virus. Not sure how they will achieve this given the challenges multiple other sports have had with false-positive results.

 

What I’ve Learned from Two Years of Retirement

Fritz Gilbert retired in 2018 after a successful career in corporate America, and he has shared his pre and post-retirement journey in an award-winning blog called “The Retirement Manifesto”.  The popular blog aims to provide a canvas for ‘helping people achieve a great retirement’.

In one of his blogs, Fritz shares his own experiences and key learnings of the first 2 years of his retirement. These learnings include:

  • Change is Constant,
  • Attitude Is Everything,
  • Slowing Down Is Good,
  • A Bucket List is Worthwhile &
  • Celebrate the Wins!

For those of you approaching that all important retirement day he also shares his experiences on what the first week of retirement is really like as well as thoughts from his first 60 days of retirement for you to digest.

 

Global Vaccine Update

In recent months we have been sharing updates on the operation to vaccinate the globes 7.8 billion people.

As of April 28th, Australia has administered 2.1m doses. At the current pace, 7 day rolling average of approximately 46,700 doses, it would take a further 31 months to administer the required 45m doses. A significant step-change is needed.

Here, you can see how Australia’s vaccine rollout compares with other countries, notably excluding Israel, which is currently leading the world with approximately 60% of its population vaccinated.

For those of you interested in keeping track of the vaccine roll-out, we again share the Financial Times rolling tracker. As of 30 April, they have recorded over 1.85 billion vaccines given globally.