The Australian Sharemarket fell to its lowest level in seven weeks on Friday, attributed to weak earnings announcements, coupled with disappointing inflation data released earlier in the week. Core inflation, the Reserve Bank’s preferred inflation measure, rose 0.8% in the September quarter, causing investors to push out expectations for a rate cut to May 2025, which pressured the banking sector. The Consumer Staples (-5.3%) sector was the worst performer, attributed to the supermarket giants. Woolworths dropped 9.2% throughout the week following a profit warning, while Coles slipped 2.9% after reporting sales slightly below expectations.
US sharemarkets cooled off again last week. The S&P 500 marked its second consecutive week of losses, while the NASDAQ started the week off positive, hitting a record high on Monday, before ending the week lower. Earnings reports from some of the big tech names provided mixed signals for investors, which dragged on the NASDAQ. Apple (-4.5%), Alphabet (1.3%), Microsoft (-5.0%) and Meta (-2.6%) all reported over the week. While results were positive, investors worried about future growth and spending on AI. In economic news, the US unemployment rate remained steady at 4.1%, despite only 12,000 jobs being added in October, supporting the case for another rate cut from the US Federal Reserve this week.
European sharemarkets also ended in negative territory last week, experiencing their biggest drop since early September. Market volatility was high, ahead of the all-important US election, as more investors hedged against a potential Trump win, causing concerns around the possible impacts of Trump imposed tariffs. The banking sector provided some relief to the market, thanks to positive earnings announcements, namely from HSBC, advancing 3.4%. Eurozone inflation rose to 2.0% in October, within the European Central Bank's target.
Owning a home is a goal for many Australians, yet this dream feels like it’s starting to slip away from the current generation. Recent data shows just 63% of Australians own their homes (both outright and with a mortgage). Up until the last few years, this rate has been closer to 70%, really showing how our housing landscape has changed. The current homeownership rate in Australia is now on the low-end when compared to global peers (see below), threatening the so called Great Australian Dream.
While there are a number of forces holding back Australia’s home ownership, ultimately this shift boils down to housing demand outweighing supply. For a number of years, population growth, especially in the major cities, has outpaced new dwellings and put upward pressure on prices. Meanwhile, wages growth has not been able to keep up with house price increases, forcing Australians to stretch their budgets and take on more debt if they want to own their own home. This shows through in household debt-to-income metrics, which are amongst the highest in the world.
Unfortunately, there is no easy fix for this issue. Some thought higher interest rates would cool house prices, however, the lack of housing supply has kept prices resilient. Meanwhile, the post-COVID surge in net migration has kept demand high. At the same time, elevated inflation has increased building costs, limiting the number of new dwellings being built. The effect of which has not only pushed up house prices, but also rent.
These housing dynamics have contributed to the termed ‘cost of living crisis’ here in Australia. While felt by the population to varying degrees (largely dependent on your housing status), the issue has become central to our politics and is expected to take centre stage in the 2025 federal election. So far, the Labor Party’s policy agenda has focused on direct social and affordable housing spending, while the Liberals want to fund infrastructure (e.g., power, water, sewerage) in areas where private development is being held back. The Liberals have also proposed allowing people to access their super to fund a home deposit. Either avenue is likely to be politically inflammatory, affecting our economy in different ways, however, necessary for many to finally address the long-term structural imbalance of housing in Australia.
Locally, the Reserve Bank of Australia is widely expected to keep interest rates on hold at their meeting on Tuesday.
It is a very busy week overseas, with the US presidential election on Wednesday, along with the November Federal Reserve meeting on Thursday, where the expectation is for a 0.25% rate cut. In addition, China’s National People’s Congress is meeting, which may see further stimulus measures announced.