Wall Street records propel ASX higher, RBA follow-up comments ‘settle nerves’

Record highs on US markets propelled the ASX firmly into the green, while fresh comments on interest rates have settled nerves.

The Australian sharemarket was propelled higher by a positive lead from Wall Street, but managed to outperform it, while follow up comments to yesterday’s rates decision appear to have “settled nerves”.

The benchmark S&P/ASX200 index rallied 0.93 per cent to 7392.7, while the All Ordinaries Index strengthened 0.87 per cent to 7713.

CommSec analyst Steven Daghlian said the local bourse outperformed US markets, which hit fresh record highs overnight, with the Dow Jones Industrial Average closing above 36,000 for the first time, up 0.4 per cent.

After the Reserve Bank of Australia held its monthly board meeting on Tuesday, keeping the cash rate at a historic-low 0.1 per cent, governor Philip Lowe said he strongly disagreed with current market pricing for hikes in 2022.

“He basically said hikes next year, while not impossible, are extremely unlikely,” Mr Daghlian said.

“But he did say it’s possible for rates to rise in 2023, so it seems to have settled nerves, to an extent.”

AMP Capital chief economist Shane Oliver remains convinced both Australian and US central banks will “start raising rates later next year”.

OMG chief executive Ivan Tchourilov noted reactions to the RBA meeting had been mixed, with the central bank “refusing to match the hawkish outlook of other major financial institutions”, and credited the ASX rise to the upbeat US lead.

“There weren’t a lot of losers today – even iron ore miners were in the green, despite iron ore prices crashing overnight,” Mr Tchourilov said.

Mr Daghlian said the iron ore price had fallen for five straight days, back below $US100 per tonne, and had tumbled about 20 per cent in a little over a week.

“This is on some fresh restrictions on steel production in China in a bid to control pollution ahead of next year’s Beijing Olympics,” he said.

Rio Tinto lifted 1.17 per cent to $89.70, BHP added 1.07 per cent to $35.94 and Fortescue advanced 3.08 per cent to $14.38.

A particularly strong performer was lithium miner Orocobre Ltd, which surged 6.7 per cent to $9.70.

The banks gained ground after three straight trading days of losses.

Commonwealth Bank revealed it will become Australia’s first bank to offer customers the ability to buy, sell and hold cryptocurrency assets, including Bitcoin and Ethereum, directly through its CommBank app.

The pilot will start in coming weeks and CBA intends to progressively rollout more features next year.

CBA put on 1.17 per cent to $107, National Australia Bank rose 1.35 per cent to $28.58, Westpac inched two cents higher to $23.15 and ANZ gained 2.26 per cent to $28.47.

Investors applauded AMP announcing it had completed its exit from life insurance after more than 170 years in the business, selling its 19.13 per cent interest in Resolution Life Australasia for $524m.

The group sold the majority of the business last year for $3bn and says the divestment of the remaining stake provides balance sheet flexibility ahead of the planned demerger of its private markets division, which holds real estate and infrastructure investments.

“It’s a welcome capital injection for the wealth manager, if their new fancy building in Sydney CBD is anything to go by,” Mr Tchourilov said.

“AMP’s streamlining plans hit a hitch when the company was rinsed at the 2019 Hayne Royal Commission – it seems they are now starting to find their feet again.

“They’re focusing on banking and wealth management and divesting from the rest, usually maintaining a stake in the divested entity.”

AMP shares leapt 9.3 per cent to $1.17.

Telstra renewed its contract with the Department of Defence, clinching a five-year deal worth more than $1bn, but its shares didn’t budge from $3.90.

Packing giant Amcor firmed 0.75 per cent to $16.11 after delivering a solid first quarter result and reaffirming its full-year outlook, despite sales in some parts of the business being hit by raw material shortages.

Insurance Australia Group continued to backtrack, losing 1.11 per cent to $4.45 a day after downgrading its full-year guidance due to higher estimates for hail and severe storm damage claims, which sent its shares tumbling more than 7 per cent on Tuesday.

“Four brokers have reduced their expectations for its shares over the next 12 months,” Mr Daghlian said.

Domino’s Pizza held its annual general meeting, announcing its commitment to net zero emissions by 2050, flagging its plan to operate more than 6650 stores by 2030 – up from 3169 currently – and also warning it expects to be faced with higher food and energy costs next year.

Domino’s shares eased 0.13 per cent to $142.30.

In economic news, building approvals fell by 4.3 per cent in September, but were up 12.8 per cent on a year ago.

Approvals to build detached houses dropped 16.1 per cent in September – which CommSec senior economist Ryan Felsman said was the biggest monthly decline in 21 years – but higher-density apartment approvals lifted 17.4 per cent.

“Building construction is expected to remain elevated over the next 12 months due to strong homebuyer demand,” Mr Felsman said.

“Builders and their contractors are under pressure to deliver projects on-time and on-budget as they work through a huge pipeline of residential, commercial and infrastructure-related construction work.

“Already construction companies are experiencing skilled trades labour shortages and rising building materials costs due to supply-chain disruptions.”

The Aussie dollar was buying 74.32 US cents, 54.53 British pence and 64.15 Euro cents in afternoon trade.

Originally published as Australian sharemarket surges into the green, notching up gains across the board

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Reserve Bank of Australia holds interest rates steady after board meeting on Melbourne Cup day

The RBA has held off lifting the cash rate from a historic low despite rising inflation and the white-hot housing market.

The Reserve Bank of Australia has decided to keep interest rates on hold as widely expected.

Following its monthly board meeting on Tuesday, the central bank announced the cash rate – the interest rate on unsecured overnight loans between banks – would stay for now at the historic low of 0.1 per cent.

The rate was reached after a series of cuts that began in March last year as the Covid-19 crisis kicked in.

The RBA has repeatedly said a hike was unlikely before 2024 as it wants to see inflation “sustainably” within the 2-3 per cent target range.

The latest Australian Bureau of Statistics inflation figures released last week showed the trimmed mean numbers – which the RBA watches most closely – had risen to 2.1 per cent growth over the year compared to an expected 1.8 per cent.

RBA governor Philip Lowe noted inflation had picked up but in underlying terms was “still low”.

“The board is prepared to be patient, with the central forecast being for underlying inflation to be no higher than 2½ per cent at the end of 2023 and for only a gradual increase in wages growth,” he said.

The RBA also scrapped its target for the April 2024 Australian government bond of 10 basis points, with Dr Lowe saying this reflected the improvement in the economy and earlier-than-expected progress towards the inflation target.

“Given that other market interest rates have moved in response to the increased likelihood of higher inflation and lower unemployment, the effectiveness of the yield target in holding down the general structure of interest rates in Australia has diminished,” he said.

Some economists believe a hike could come as soon as late 2022, with others tipping 2023.

On top of rising inflation, the trend of lenders increasing fixed interest rates for terms greater than 12 months also suggested a higher cash rate some time in 2023, Canstar group executive of financial services Steve Mickenbecker said.

CreditorWatch chief economist Harley Dale said market interest rates would rise in the interim “or so everybody expects”.

Mr Dale said the RBA’s December 7 board meeting decision – the final until February 1 – would be the year’s most important.

“As economic conditions move in a way that is sometimes evolving and sometimes revolutionising, the RBA is sticking to its record low interest rate policy, but not necessarily the timing of it,” he said.

“The December statement will be a key update given the bank will have had the opportunity to scrutinise an increasing amount of information regarding post lockdown economic outcomes.”

Almost 30 per cent of respondents to a Canstar survey said they favoured increasing interest rates as a measure to cool the property market, following the latest CoreLogic data showing national home values rocketed 21.6 per cent over the year to October.

“It may be a case of ‘be careful what you wish for’,” Mr Mickenbecker said.

“If the cash rate hiked by 0.25 per cent and lenders passed this on in full, a residential borrower with a $1m mortgage on the average variable rate of 3.09 per cent would see their monthly loan repayments rise by $137 to reach $4402.

“But this will be just the start of the race for rate increases and a year down the track would surely see the cash rate increase by 1 per cent.

“If this happens, the borrower with a $1m mortgage would see their monthly repayments rise by $561 to $4826, which is quite a stretch.”

Originally published as Reserve Bank keeps unprecedented low interest rate on hold again

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Crippling Australian house prices now locking out middle income earners

It’s not just low income earners who are struggling to save for a mortgage, with time needed to save for a deposit ballooning.

As house prices continue to creep higher, it’s not just low income earners who are struggling to save for a mortgage, with middle-class professionals also caught up in what has become a major economic problem.

CoreLogic’s monthly dwelling price index is due on Monday and CommSec tips it will show a rise of about 1.3 per cent.

That comes after a 1.5 per cent increase in September, which took Australian housing values an eye-watering 20.3 per cent higher over 12 months, bringing the median house value in the nation’s most expensive market – Sydney – to just over $1.3m.

Crunching CoreLogic and Australian Bureau of Statistics numbers, comparison website Finder this week estimated the average time to save for a deposit in the NSW capital at more than eight years.

But it believes the suburbs of Woollahra and Mosman are far more daunting to buy into, putting the average time needed to save for a deposit at a staggering 18-plus years.

The Reserve Bank of Australia has been saying for months it is keenly watching the overheated housing market, with Governor Philip Lowe worried if Australians started “borrowing ridiculous amounts of money” in a speculative way.

Earlier this month, the point of discomfort was finally reached, CBA head of economics Gareth Aird noted, with a policy response seeking to slow the amount of new lending at high debt-to-income ratios.

Major bank economists all say they expect dwelling prices will keep rising next year but not at the same runaway rate as recently, with Mr Aird, for example, tipping national dwelling prices will lift by 7 per cent in 2022.

Emma Dawson, executive director of inequality think-tank Per Capita, said working Australians hadn’t had a real wage rise for the better part of a decade but property prices were accelerating at a rate nobody on an average income could hope to match with their savings.

“First home buyers who are still able to cobble together the deposit for a home – often with help from the Bank of Mum and Dad – are leveraging themselves to the hilt in order to get on the property ladder,” Ms Dawson told NCA NewsWire.

“During the last six months alone, average mortgages have been increasing at a rate of $11,600 per month.”

It is important to note that ballooning house prices are also cascading through the rental market.

Kate Colvin, national spokeswoman for affordable housing lobby group Everybody’s Home, fears the wider fallout will be severe when even professional couples working full-time who are struggling to enter the property market instead become stuck in an expensive rental market.

“The housing situation in Australia has gone well beyond being a problem just for people on low incomes,” Ms Colvin told NCA NewsWire.

“People who are on average incomes … are having to delay home purchases longer, creating a problem where people might be retiring with mortgage debt that they struggle to pay off.”

She said sky-high values had priced much of the country out of home ownership and triggered a confronting economic reality that was forcing many people further and further away from stable and secure housing.

“If affording a house is a problem for a middle kind of income, then imagine what it is like for someone who is, you know, a hospitality worker getting a much lower hourly rate, or an aged care worker, let alone someone who actually is just not in a position where they can work because they’re not well,” she said.

“People are being really, really left behind.”

Ms Dawson agreed house prices rising this fast presented a systemic risk to the economy.

She pointed the finger of blame squarely at those speculators Dr Lowe was referring to.

“Record low interest rates are driving the surge in house prices, but the availability of cheap money is not particularly benefiting first time buyers,” Ms Dawson said.

“Instead, investors are claiming an increasing share of properties, forcing up prices and locking young families out of a secure home.

“Along with low interest rates, the discount on capital gains tax is fuelling speculative investment as people seek short term profits that are taxed at half the rate of earnings from work.”

She said the RBA was “unable to raise interest rates to cool the market without stymieing Australia’s economic recovery”.

“Fiscal policy continues to favour investors and push up house prices.

“Without federal government intervention to rebalance tax settings and macroprudential regulations to reduce the incentive to speculate on property gains, and to build significantly more social and affordable housing, this house price spiral will continue to present a serious risk to our economy, and the security of younger generations.”

Originally published as Crippling Australian house prices now locking out middle income earners

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