#3 Happy Easter - Markets Rise

Happy Easter and sorry for the late weekly email it has been a busy week coming into the Easter break. The market continues its dominance with a last little rally yesterday before the Easter break which has been nice. Inflation has eased a little more which is a good sign but still way to early for interest rate drops. The housing market has started to stabilise a little which is good for long term growth, sustainability and affordability as well.

Australian inflation is continuing to surprise on the downside and is tracking below RBA forecasts. For the fifth month in a row monthly CPI inflation came in weaker than expected in February, with a monthly rise of just 0.2%mom and annual inflation unchanged at 3.4%yoy. While fuel and education costs rose sharply and housing costs continue to rise at a rapid rate this was offset in in the month by greater than expected weakness in costs for holiday travel (despite Swiftonomics boosting hotel prices in Sydney and Melbourne), utilities and many food items.

The continuing faster than expected fall in Australian inflation provides support for our view that the RBA will start to cut rates from June. However, in the interim the RBA is likely to remain cautious and the risk remains high that the combination of the economy still growing, the stronger than expected labour market, upside risks to wages growth (flowing from another large increase in aged care workers wages and the upcoming minimum and award wage cases), along with the revamped Stage 3 tax cuts will see the start of rate cuts pushed back to August or September.

The labour market is continuing to cool - job vacancies fell for the seventh quarter in a row in February. They are still high relative to unemployment indicating the jobs market remains tight but its cooling which will take pressure off wages growth.

Credit growth remains moderate. February data showed that growth in housing credit remains well down from the last big property price upswing into 2022 reflecting much lower property sales volumes this time around, more cash only transactions (and likely also more “bank of mum and dad” financing) and recent price strength coming in lower priced cities.

Outlook for investment markets

Easing inflation pressures, central banks moving to cut rates and prospects for stronger growth in 2025 should make for good investment returns this year. However, with a high risk of recession and investors and share market valuations no longer positioned for recession and geopolitical risks, it’s likely to be a rougher and more constrained ride than in 2023.

We expect the ASX 200 to return 9% this year and rise to around 7900. This is now looking conservative. A recession is probably the main threat.

Bonds are likely to provide returns around running yield or a bit more, as inflation slows, and central banks cut rates.

Unlisted commercial property returns are likely to be negative again due to the lagged impact of high bond yields & working from home.

Australian home prices are likely to see more constrained gains compared to 2023 as still high interest rates constrain demand and unemployment rises. The supply shortfall should provide support though and rate cuts from mid-year should help boost price growth later in the year.

Cash and bank deposits are expected to provide returns of over 4%, reflecting the back up in interest rates.

A rising trend in the $A is likely taking it to $US0.72, due to a fall in the overvalued $US & the Fed cutting rates by more than the RBA.

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Happy Investing!!!!!!

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Angus Stewart - Help share the love and follow us weekly.

IMPORTANT DISCLAIMER: This is not advice. Readers should not act solely based on the material contained in this newsletter.