Outgoing Reserve Bank governor Philip Lowe finished his tenure as he began by keeping rates on hold as inflation cools.

With inflation past its peak, can we expect rate cuts on the horizon, and could a softening of China's economy bring them even closer, or will services inflation drive the incoming governor Michele Bullock to deliver a rate rise later this year?

Darren is joined by special guest Roy Keenan, Co-Head of Fixed Income, to explore this and the outlook for credit markets in episode 42 of The Rate Debate.

The RBA has elected to maintain the current cash rate for the third month in a row, with economists predicting we are at the top of the interest rate cycle. This is a positive sign for Australian property prices, as consumer confidence begins to increase.

The CoreLogic Home Value Index for the month of August is extremely positive, with all capital cities excluding Tasmania recording growth. Brisbane has led the way, with a 1.5% increase for the month, followed by Sydney and Adelaide, both recording a 1.1% increase. Perth, Darwin, Melbourne and Canberra also recording monthly growth of 0.9%, 0.8%, 0.5% and 0.3% respectively. Tasmania was the only capital city which did not experience growth for the month, falling just 0.1%.

Whilst the capital city data was favourable, the regions experienced mixed results, with only regional South Australia, Queensland and Western Australia experiencing growth with 0.9%, 0.8% and 0.1% respectively. Regional Victoria fell the furthest, with a 0.6% reduction, along with New South Wales recording a 0.2% fall. The other regions remained stable.

In a positive sign, property prices have continued to increase despite supply also increasing. The number of auctions taking place continues to increase, with 2,291 auctions taking place on the first weekend of September, up from 1,823 on the same weekend in 2022.

Further bolstering the apparent strength of the Australian property market is that clearance rates also remain high, with a 71.2% clearance rate for the combined capital cities, up from 59.4% from last year. Melbourne and Sydney held the most auctions with 991 and 933 respectively, with Brisbane (159), Adelaide (103) and Canberra (95) well behind. Further behind was Perth and Tasmania recording just 8 and 2 auctions for the weekend.

Adelaide recorded the highest clearance rate of 82.8%, followed by Sydney (73.8%), Melbourne (69.3%) and Brisbane (66.7%) all performing above last years results. Canberra was the only market in which the clearance rate dropped, with 63.6% for the weekend, down from 67.7% last year.

Economists now predict we are at the end of the rate hike cycle and that demand should also increase as consumer sentiment rises on the back of interest rate stability, and the expectation that rates may begin to fall in mid to late 2024.

Clearance Rates & AuctionsWeek of the 3^rd of September 2023

Property Values as at 31^st of August 2023

Median Dwelling Values
as at 31^st of August 2023

Quick Insights

Bouncing Back

The national housing market valuation has now bounced back to $10 trillion with the increase in stock, some unexpected price recoveries and the RBA's decision to hold rates.

"It's pretty astounding to see the total housing value hit $10 trillion in just 14 months, which reflects the resilience of the market despite a cost-of living crisis, low consumer sentiment levels and four increases in the cash rate so far this year amid the fastest rate hiking cycle on record" said Eliza Owen, CoreLogic head of research.

Source: Australian Financial Review

Yes! In My Backyard!

An astonishing and impossible new alliance has formed in NSW comprising NSW universities, two Labor-backed unions, and the state's peak business lobbying association.

The group is called Housing Now!, and it aims to pressure the government to pursue more housing developments in often forgotten and undervalued areas such as along train lines.

They also aim to loosen some of the council-level restrictions around zoning and wait times for development applications.

Source: Australian Financial Review

Author: Filippo Sciacca, Director - Investor Relations, Asset Management and Compliance

Globally equity markets in August were broadly weaker. In the US, the S&P 500 fell -1.8%, whilst the Nasdaq declined -2.2%. In the UK, the FTSE 100 fell -3.4%. Impacting investor sentiment was weaker than expected Chinese economic data (eg. Industrial output and credit growth), which saw commodity prices fall during the month.

In Australia, the All Ordinaries Accumulation index fell -0.7%. Consumer discretionary was the top performing sector (driven by better than feared results), whilst utilities and staples (ie. more defensive sectors) underperformed. August saw the majority of listed companies report their results for the six months to 30 June, which provided an excellent health check on how these companies are trading in the current economic environment.

In terms of the macro environment, data in August pointed to a continued reduction in inflationary pressures both in Australia and overseas. This in turn, should mean the bulk of heavy lifting in terms of interest rate rises needed to bring inflation down to targeted levels, has now been done.

We viewed the August reporting season on the ASX as broadly better than had been feared. Many companies are seeing significant cost pressures (eg. wages, energy, rent, interest expense), however these issues were well known going into reporting season. Interestingly, the consumer discretionary sector performed well despite bearish expectations by investors. Whilst economic conditions remain challenging, it is important to remember the stock market is forward looking, hence we continue to believe the correct approach is invest in quality businesses and take a medium-term view, particularly given inflation data is now pointing to a clear decline from the very high levels of 6-12 months ago.