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Monthly markets review – July 2022 – Pensions

Monthly markets review - July 2022 - Pensions

The month in summary:

Developed market shares gained in July as investors began to focus on the prospect of interest rate cuts next year, given signs of a slowing global economy. Growth stocks were the main beneficiaries, with strong gains in July after poor performance year-to-date. However, emerging market equities lagged amid weakness in China. Bond yields fell, meaning prices rose.

Please note any past performance mentioned is not a guide to future performance and may not be repeated. The sectors, securities, regions and countries shown are for illustrative purposes only and are not to be considered a recommendation to buy or sell.

US

US equities rebounded in July. As anticipated, the Federal Reserve (Fed) hiked interest rates by 75 basis points (bps); however, chair Jerome Powell subsequently commented that the pace of policy tightening is likely to relent from here. In prepared comments, Powell said “the labor market is extremely tight and inflation much too high” but concluded that the pace of increases may now slow down.

On the data front, US GDP contracted 0.9% on an annualized basis in Q2 following a decline of 1.6% in Q1. Inflation as measured by the headline consumer price index (year-on-year) came in above consensus at 9.1% in June. This was the largest increase in more than four decades, leaving consumers having to pay higher prices for gas, food, healthcare and rents. The headline unemployment rate held steady at 3.6% in June.

Equities rally. All sectors advanced, with consumer discretionary and tech companies making some of the strongest gains. Automotive stocks rally strongly. More defensive areas of the economy such as consumer staples lagged.

euro zone

Eurozone shares gained in July, along with other major stock markets. The European Central Bank (ECB) raised interest rates by a larger-than-expected 50 basis points (bps), ending the era of negative rates. The ECB also unveiled its new “anti-fragmentation tool” which is designed to prevent bond yields in the periphery (particularly Italy) widening excessively compared to German yields. The move coincided with Mario Draghi’s resignation as Italian prime minister, with an election due on 25 September.

Economically sensitive parts of the market led the way with double-digit gains for the information technology, consumer discretionary and industrial sectors. By contrast, the energy, financials and communication services sectors were largely flat.

A flash report put eurozone annual inflation at 8.9% in July, with energy prices again contributing the largest proportion of the rise. There were heightened concerns about the security of gas supply to Europe during the month after the Nord Stream 1 pipeline, which supplies gas from Russia to Germany, was closed for maintenance and then reopened at reduced capacity. GDP in the second quarter grew by 0.7% quarter-on-quarter. However, the European Commission’s consumer confidence reading dropped to a record low of -27.0 in July.

UK

UK equities bounced back over July. The recovery was in large part driven by the consumer discretionary and industrial sectors, areas which have performed poorly since the start of 2022 but recovered well in July. They had been weighed down by the cost of living crisis clouding the outlook for the UK consumer and economy more broadly, and the negative impact of rising interest rate expectations on valuations of many high growth companies.

These trends particularly benefited UK mid-cap companies. In contrast, some of the more defensive large cap areas of the market – such as healthcare and telecommunications, performed poorly over July. These more defensive sectors had previously contributed to the UK’s relatively strong relative year-to-date performance.

Meanwhile, other outperforming large cap sectors of 2022, including energy and resources lagged. This was partly due to worries around the outlook for the global economy weighing on commodity prices. Meanwhile, moderating expectations around further interest rate rises were a negative for financials.

Despite an uncertain outlook, it was revealed the UK economy enjoyed a strong month in May, with output growing by 0.5%, after shrinking 0.2% in April. The collapse of the Boris Johnson premiership, which has triggered a leadership contest for the Conservative Party and race to be the next UK PM, added to uncertainty about the direction of the country and economy.

Japanese

The Japanese stock market rose steadily during July, ending 3.7% higher. In the second half of the month, the yen reversed some of its recent losses against the US dollar but remains significantly weaker than the level at the beginning of the year. The yen also strengthened against sterling in July.

Market events in July were overshadowed by the shocking assassination of former Prime Minister Shinzo Abe on 8 July. Although Japan has had two Prime Ministers since Mr Abe, he remained a hugely influential figure within the ruling Liberal Democratic Party (LDP). In the immediate aftermath, however, the resulting strong support shown for the LDP in the Upper House elections has solidified the position of current Prime Minister Kishida.

As widely expected, the Bank of Japan left policy unchanged at its July meeting and the interest rate differential with the US therefore widened further after the decision by the US Federal Reserve to raise rates by 0.75%. Data released in July showed Japan’s core inflation rate, excluding fresh food, continued to edge up to 2.2% in June.

In recent months expectations have grown for a consumption-led rebound in Japan’s domestic economy, but the latest wave of Covid infections has introduced renewed uncertainty over the timing of this. There was a solid start to the corporate results season for the March to June quarter, with the bulk of announcements due in early July.

Asia (formerly Japan)

Asia ex Japan equities registered a negative return in July, as declines in China and Hong Kong offset gains in India, South Korea and Singapore. China was the worst-performing market in the MSCI Asia ex Japan index in July as slowing economic growth, ongoing Covid-19 lockdown measures (as part of China’s zero-Covid policy) and regulatory issues weakened investor sentiment towards the country.

In Hong Kong, heavy selling of technology stocks, such as e-commerce company Alibaba, dragged the market lower, while Thailand also ended the month in negative territory.

India was the best-performing market in the index on renewed investor optimism. South Korea also achieved a solid gain in July after the country announced that the economy had grown by 0.7% in the second quarter, compared to the first quarter, exceeding analyst expectations.

Singapore also achieved a strong performance in July, due to investor confidence on corporate earnings and support from energy and technology stocks, while gains achieved in Taiwan, Indonesia and Malaysia were more muted in the month.

emerging markets

Emerging market (EM) equities posted a negative return in July, underperforming global equities by the most since July 2015. Overall, EM did not participate in the bounce in seen in developed markets in the month. This was largely attributable to weakness in China as the majority of other index markets finished in positive territory. Dollar strength remained a headwind.

China was the worst index performer. Economic data released in the month was mixed. While the economy expanded at its slowest rate since the beginning of 2020, at 0.4% year-on-year in Q2, June’s exports grew 17.9% compared to the same month last year. Meanwhile, problems in the property market continued to spread and new Covid lockdown measures were imposed in several cities in response to the spread of the Omicron variant.

Turkey, Colombia and Thailand were also weak and underperformed broader emerging markets. Softer energy prices were a headwind for crude oil exporter Colombia, while in Turkey, lira depreciation weighed on returns, as did inflation data which showed consumer prices accelerating 78% year-on-year.

By contrast, Chile was the best-performing index market, aided by currency strength. India also delivered a strongly positive return. Lower energy prices over the month were helpful, as was the government’s reversal of a windfall tax on local crude oil sales and fuel exports.

Despite weaker energy prices, Qatar, Saudi Arabia and UAE outperformed, supported by some good earnings results over the month. On the macroeconomic front, the Saudi economy grew at 11.8% year-on-year in Q2 and both the UAE and Saudi announced fiscal stimulus packages to aid low-income citizens.

global bonds

Bond yields fell in July, alleviating some of the intense pressure seen year-to-date (falling yields implies rising prices). Softening data in the US supported bonds as investors weighed an economic downturn and potentially more moderate interest rate rises.

There was evidence of a slowdown in the US economy, with housing activity particularly weak as higher mortgage costs constrained demand. The Federal Reserve (Fed) however hiked the policy rate by 75 basis points (bps) in an attempt to constrain inflation pressures. The US 10-year yield fell from 2.97% to 2.64%, with the yield curve flattening.

There were significant developments in Europe. The European Central Bank (ECB) raised interest rates by 50bps, its first hike in 11 years, and ending the era of negative interest rates, which began in 2014.

At the same time, following its discussions for an “anti-fragmentation” policy in June, it announced a “Transmission Protection Instrument” (TPI). Detail is limited, but this will allow potentially unlimited purchases of sovereign bonds to counter “disorderly market dynamics”.

While Europe continues to face elevated inflationary pressures, there has also been renewed political uncertainty in Italy culminating in Mario Draghi’s resignation as prime minister this month. This has destabilized Italian government bonds in recent weeks.

European yields appeared to be led more by growth concerns too, however, and declined over the month. Germany’s 10-year yield fell from 1.37% to 0.82% and Italy’s from 3.39% to 3.15%.

Corporate bonds enjoyed a strong rebound and outperformed government bonds. Euro investment grade and US high yield did particularly well. (Investment grade bonds are the highest quality bonds as determined by a credit rating agency; high yield bonds are more speculative, with a credit rating below investment grade).

Emerging market (EM) bonds also saw positive returns, particularly hard currency investment grade sovereign debt. Local currency bonds performed well in local terms; however, most EM currencies weakened against the US dollar.

With global equities gaining over 7%, convertible bonds were able to play off their core strength and delivered around 60% upside participation in the gains. The Refinitiv Global Focus convertible bond index gained 4.2% in US dollar terms.

commodities

The S&P GSCI Index achieved a flat return in July as declines in agriculture and precious metals offset higher livestock prices. Agriculture was the worst performing component of the index in July, with sharp falls recorded in the price of wheat due to an improvement in the production outlook and better weather conditions. Sugar and coffee prices also declined in July. In the precious metals component, the price of both gold and silver declined.

Within energy, natural gas prices spiked amid heightened worries over Russian gas supply to Europe. Livestock was the best performing sector. Within industrial metals, lead and zinc achieved robust price gains, while gains for nickel and aluminum were more muted. The price of copper fell in July.

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The value of investments and the income from them may go down as well as amounts up and investors may not get back the originally invested.

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Aussie mortgage holders burn in negative equity hell

Aussie mortgage holders burn in negative equity hell

Veteran bank analyst Jon Mott warns a $250 billion wave of mortgage delinquencies could sweep Australia if ANZ’s, Westpac’s and the financial market’s 3% official cash rate (OCR) forecasts come true.

Mott notes that the build-up in mortgage debt over the prior two years “is the second-biggest jump seen since lending data was first captured during the 1970s, and only beaten by the 131.5% rise in the lead-up to the 1988-89 housing downturn”.

And it is this cohort of borrowers who have overextended themselves and risk defaulting on their mortgages:

While he concedes the analysis is rough, he estimates that, in total, borrowers who have somewhere between $200 billion and $250 billion in mortgages will face severe stress if the cash rate hits 3 per cent later this year, as expected.

“If interest rates continue to rise sharply, and stay around these levels, there will be a ‘fat tail’ of borrowers who will simply not be able to afford to meet their repayments,” Mott says.

“For the first time in several decades, we are likely to see a wave of fully employed borrowers falling into delinquency as they simply can’t make ends meet.”

Mott’s analysis might seem alarmist. However, the latest ANZ, Westpac and futures market forecasts tip the OCR will peak at around 3.25% early next year, which would take the average discount variable mortgage rate to 6.60%, up from 3.45% in April before the RBA commenced its tightening cycle :

Australian discount variable mortgage rate

Mortgage rates to rise to 2012 levels.

This would represent the highest mortgage rate since 2012. It would also lift principal and interest mortgage repayments by 43% against their level in April:

Australian mortgage repayments

In dollar terms, a household with a $500,000 mortgage would see their monthly repayments rise by $962, whereas a household with a $1 million mortgage would see their monthly repayments soar by $1,924.

This presents a poison pill for households that borrowed to the max over the pandemic at ultra low rates to get into the market. These borrowers would face extreme financial strain at the same time as their house values ​​collapse, especially across Sydney and Melbourne.

Many would be thrown into negative equity and some would default.

Ultimately, the ball is in the RBA’s court. Will it continue hiking aggressively, as tipped by ANZ, Westpac and the financial markets? Or will it follow CBA’s projection, stop-out early and then cut?

Only time will tell.

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Rashays restaurant owner Rami Ykmour smokes over beef, lettuce prices, says labor shortages to blame

A 'disgusted' Australian restaurant owner, Rami Ykour of Rashays, has gone ballistic over the cost of meat and vegetables, fuming that claims of floods still causing price hikes are 'BS

A ‘disgusted’ Australian restaurant owner has gone ballistic over the cost of meat and vegetables, fuming that claims of floods still causing price hikes are ‘BS’.

In a passionate video, Rashays founder Rami Ykour argued that ongoing labor shortages are ‘the real reason’ for price rises.

‘I’m going to go on a bit of a rant here. I am disgusted. I’m really disappointed with what’s going out there,’ he said.

Mr Ykmour angrily claimed he would lose customers if he passed on the high costs of lettuce and beef to customers in his 34 stores.

‘Just to get the lettuce out to our restaurant is costing so much money, and there’s no way customers will come back if we spend on that cost.

He told Daily Mail Australia that passing on the higher costs could add up to a third to the cost of meals. ‘We don’t follow the giants like that here,’ he said.

Vegetables, fruit, breakfast cereals, bread, eggs, oils, butter and margarine have all jumped sharply in price in the last year, according to the Australian Bureau of Statistics (ABS).

A 'disgusted' Australian restaurant owner, Rami Ykour of Rashays, has gone ballistic over the cost of meat and vegetables, fuming that claims of floods still causing price hikes are 'BS

A ‘disgusted’ Australian restaurant owner, Rami Ykour of Rashays, has gone ballistic over the cost of meat and vegetables, fuming that claims of floods still causing price hikes are ‘BS

The ABS released its quarterly Consumer Price Index (CPI) figures – the key measure of inflation – on Wednesday morning, showing a 6.1 per cent jump over the last year.

The biggest jump in an everyday grocery item was the cost of vegetables, up 7.3 per cent in the last year, due to many accounts of the continued flooding in southeast Queensland and New South Wales.

In July Mr Ykmour paid $144 for a box of 18 iceberg lettuces, at $8 a head.

‘The beef prices have also gone through the roof, too.

‘You know what they tell us, “let’s blame the floods”. You know what, I call that? BS!’

Consumers have been hit hard by rising prices and one restaurant owner says he will lose too many customers if he passes the higher prices on

Consumers have been hit hard by rising prices and one restaurant owner says he will lose too many customers if he passes the higher prices on

In a passionate video Rashays founder Mr Ykour argued that ongoing labor shortages are 'the real reason' for price rises

In a passionate video Rashays founder Mr Ykour argued that ongoing labor shortages are ‘the real reason’ for price rises

‘The real problem is we’re short labour… there’s no-one out there to pick cos lettuce. There’s no-one to pick an iceberg.

‘There’s no-one to work in our farms. There’s no-one to work in our country abbatoirs, that’s why the prices have gone up.’

Mr Ykmour claimed governments need to do more to bring in more labor to ‘help small business’.

‘It’s time the government stepped in and said listen “we’re going to open the gates, we’re going to let people in to work here and we’re going to make it easy for small business”, guys this is getting ridiculous.

‘Now I ask for something to be done.’

National Farmer’s Federation president Fiona Simson said farmers are ‘crying out for workers’, partly driven by a lack of backpackers.

‘Even now the borders are open there are only about 40,000 working holiday makers in Australia compared to 141,142 in December 2019,’ Ms Simson said.

She said the labor issue was only one of several affecting prices, but it is one that the federal government can act on to bring in more overseas workers.

‘The workforce crisis is hampering farmers’ ability to plant and harvest produce, so fruit and veg aren’t being planted and picked when they need to be, compounded by freight and logistics being more expensive and unreliable – again due to labor shortages and things like increases in fuel costs.’

Guy Gaeta, from the NSW Farmers Association, told Daily Mail Australia that labor shortages are a factor but not the best factor impacting prices.

‘With lettuces at $5 a head do you think they’ll leave them in the ground? At those prices they’ll be finding someone to pick them.’

He said labor shortages typically hit agriculture between November and April when more crops need harvesting, but at present with less food needing picking farmers are able to spread the available workforce out.

According to the NSW Farmers Association the floods in south-east Queensland did have a major impact on fruit and vegetables prices because so many crops were destroyed.

Guy Gaeta, from the NSW Farmers Association, told Daily Mail Australia that labor shortages are a factor but not the best factor impacting prices impacting higher producing prices

Guy Gaeta, from the NSW Farmers Association, told Daily Mail Australia that labor shortages are a factor but not the best factor impacting prices impacting higher producing prices

According to the Department of Home Affairs more than 23,000 Pacific and Timorese employees are in Australia to work in primary industries, including farms, as of April under existing programs.

Another 9,000 were due to arrive by October and a further 52,000 workers were awaiting placements.

In April, the Federal government introduced a new Australian Agriculture Visa program to address workforce shortages in farming by allowing employers to sponsor workers from Vietnam and other pacific neighbours.

The new Labor government is expected to address all workforce shortages under an expanded Pacific Australia Labor Mobility (PALM) scheme.

Under the PALM program farmers can recruit workers for seasonal jobs for up to 4 years in unskilled, low-skilled or skilled jobs.

The PALM scheme is currently open to residents of 10 pacific island nations.

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Rashays boss Rami Ykmour blames labor shortages for lettuce, beef price rises

Rashays boss Rami Ykmour blames labor shortages for lettuce, beef price rises

The owner of a popular Sydney restaurant chain has launched into a furious “rant” about skyrocketing costs, saying he is now paying $140 for a box of lettuce and can’t afford to pass it on to his customers.

But Rashays co-founder Rami Ykmour, who made headlines during Covid for clashing with police over masks and speaking out against banning unvaccinated diners, says labor shortages – not the floods – are to blame for rising prices.

“I am disgusted, I am really disappointed with what’s going on out there, guys,” the outspoken restaurateur said in a TikTok video.

“Listen to this. We are buying a box of lettuce for $140. How much are we going to pass on to our customers? How can we pass on that expense to our customer? Even the big fast food giants have stopped serving their magic burger because this is worth, what, seven, eight bucks? One head of lettuce?

Mr Ykmour said he “can’t believe this”.

“Guys, just to get lettuce out to our restaurant is costing us so much money there is no way customers will come back if we pass on that cost,” he said, adding beef prices had also “gone through the roof”.

“And you know what they tell us? Let’s blame the floods. You know what I call that? BS,” he said.

“Do you know what the real problem is? The real problem is we’re short labour. The real problem is no one is out there to pick cos lettuce, there’s no one out there to pick iceberg. There’s no one to work in our farms, there’s no one to work in our country abattoirs. That’s why the prices have gone up, but they’re covering up for it.”

He said it was “time the government stepped in and said listen, we’re going to open the gates, we’re going to let people here and we’re going to make it easy for small business to run their business, we’ re going to let people come into the country and work here”.

“Guys, this is getting ridiculous,” he said. “Now ask for something to be done.”

Speaking to news.com.au on Friday, Mr Ykmour insisted labor shortages were responsible for price increases in production.

“I can tell you that first-hand,” he said.

“I was on a lettuce farm in Melbourne last week, they had six people on and usually they have 40 people. [The floods] did contribute in the early days, but it’s got nothing to do with what’s happening today.”

Mr Ykmour said governments needed to once again incentivize people to come to Australia to work, with something similar to the “Ten Pound Poms” scheme after World War II.

“We’re at that level now,” he said.

He said he believed border closures over the past two years had “of course” caused labor shortages, but that the issue was much broader.

“I think people just don’t want to work,” he said. “Coming off the pandemic, people are struggling.”

Recruiters have previously warned Australia is grappling with a massive skills shortage as employers struggle to fill roles.

Graham Wynn from Superior People Recruitment told news.com.au in June that he had “never seen it this bad”.

“This is the worst and most difficult it’s been to find people,” he said, adding it was “across the board”.

“Salespeople, technicians, a bit of IT we’re struggling with as well, but even the more basic roles which don’t require any experience like receptionists, we’re even struggling to find those at the moment.”

Mr Ykmour agreed, saying his business was getting hit with a “double-whammy” as a result.

“It’s [affecting] the price of produce, and we’re getting hit with staff shortages, right from the top level all the way down to waiters,” he said.

“My head office employs 60 people and we’re struggling, it’s just permanent recruitment. What used to take four weeks to find you’re now looking at three months.”

I have argued lockdowns were partly to blame for the general malaise, along with Covid itself.

“I think we’ve trained people to stay at home with lockdowns and all the rest,” he said.

“We’ve told people, listen, it’s OK to stay at home. I reckon a lot of people in the community are mentally drained on the back of the pandemic — people are finding it hard to just survive at the moment.”

Prime Minister Anthony Albanese is coming under increased pressure from the states and the business lobby to ramp up immigration to address lingering skills shortages after two years of Covid border closures.

Last year, NSW government bureaucrats urged Premier Dominic Perrottet to push the federal government for an “explosive” post-WWII-style immigration surge that could bring in two million people over five years.

NSW Skills Minister Alister Henskens last month called on the Albanese government to implement a “significant acceleration” of the nation’s skilled migration program, Australian reported.

Australia’s annual inflation rate rose to 6.1 per cent in the June quarter, figures released last week show, the fastest pace since December 1990.

According to the Australian Bureau of Statistics, the most significant contributors to the 1.8 rise in consumer prices over the quarter were new dwelling purchases, automotive fuel and furniture.

Price rises were also seen across all food and non-food grocery products, “reflecting a range of price pressures including supply chain disruptions and increased transport and input costs”, the ABS said.

Fruit and vegetable prices were up 7.3 per cent compared with the same quarter last year, meat and seafood rose 6.3 per cent, bread and cereal products were also up 6.3 per cent, while dairy and related products increased by 5.2 per cent.

“Fruit and vegetables rose 5.8 per cent [in the June quarter] due to heavy rainfall and flooding in key production areas of NSW and Queensland disrupting domestic supply,” the ABS said.

“Covid – related supply chain disruptions and high transport and fertilizer costs also contributed to the rise. Bread and cereal products rose 3.1 per cent due to constrained global wheat supply.”

The ABS noted meals out and takeaway foods also rose 1.4 per cent “due to rising input costs and ongoing supply and labor shortages”.

“Dining vouchers offered by the NSW and Victorian governments and the Melbourne City Council partially offset the rise,” it said.

“These voucher schemes have the effect of reducing out-of-pocket costs for consumers. Excluding the impact of these voucher schemes, Meals out and takeaway foods rose 2.1 per cent.”

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Southwest passenger shares shock as plane window appears to shatter on flight

A passenger has shared her shock online after it appeared her plane window shattered during a recent flight in the US.

In a viral video shared to TikTok, the traveler Mia can be seen clasping her hand over her mouth, while zooming in on her window, showing it cracked and broken. Watch above.

She doesn’t say anything in the clip, but posts a subsequent video to explain the situation, revealing that in the end it wasn’t as serious as what it appeared.

READMORE: Plane passengers stunned by shocking barefoot act

Passenger shares video of broken window on Southwest Airlines flight
A passenger shared video of broken window on Southwest Airlines flight. (Tik Tok)

Traveling on a Southwest flight from Tucson, Arizona, to Las Vegas, Mia said they had just taken off and flight attendants were taking drink orders when she went to rest her arm on the window sill.

“As soon as my elbow applied any kind of slight pressure, as soon as that happened, the whole window just broke, shattered, the whole thing,” she said in the second video sharing the story.

“So obviously I immediately hit the flight attendant button… she comes over her jaw drops. She’s looking at me, I’m looking at her, she’s looking at the window. She hits a 180 and runs over to the pilots’ cabin and she gets the 4-1-1 from them.”

Mia was then assured there were no issues with cabin pressure and they were safe to complete their flight to Las Vegas, but she was able to change seats.

“Good thing, there are two, three windows. I don’t know how to build plans, but you know, good thing that was there. Everything was fine and we were good for a safe landing in Vegas.

“The plane was originally supposed to continue on to another airport, but obviously the plane needed maintenance after that.”

READMORE: Disney World visitors stuck on ‘It’s a Small World’ ride for over an hour

Passenger shares video of broken window on Southwest Airlines flight
She said pilots assured her the cabin pressure was fine as it was only the inside plastic layer. (Tik Tok)

Indeed it was only the inside plastic layer of the window that broke, though the footage still went viral being viewed over 12.3 million times.

“I would instantly cry thinking that I was going to get sucked out the window,” one person commented.

“This would cause me to never fly again tbh,” another said.

Though others weren’t concerned, with one pointing out: “Plans have two windows that’s just the tint.”

Joaquim Martins, a professor at the University of Michigan and expert in aircraft design, confirmed as much, telling Insider the cracked plastic didn’t pose any safety threat as its the outside glass window absorbs all the force.

Non-structural items breaking on planes is “perfectly normal”, he said, adding if it had it been the actual glass panel, “stuff would be getting sucked out, and she would have had to put on an oxygen mask.”

The passenger said she received a US$300 flight voucher from Southwest following the incident.

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plane act man caught watching rude film on flight

Passenger slammed online for ‘gross’ act on flight

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Australian house prices: 300 suburbs that have significantly dropped in value

Australian house prices: 300 suburbs that have significantly dropped in value

As skyrocketing interest rates smash the Australian housing market, a dozen suburbs have already seen property prices fall by more than $500,000 since March.

PropTrack’s automated valuation model (AVM) data show more than 300 suburbs across the country where dwelling values ​​have experienced six-figure falls over the quarter.

In percentage terms, the worst-performing suburb in the country was South Hedland in WA’s Pilbara region, where units dropped by 24.81 per cent to a median value of $213,791 in June 2022 – a loss of more than $70,000.

That was closely followed by Booval in Queensland, where unit prices were down 24.64 per cent, or more than $121,000, to $370,231.

But it was wealthy suburbs in the capital cities that experienced the largest falls in dollar terms, with parts of Sydney’s northern beaches and eastern suburbs, Melbourne’s Mornington Peninsula, as well as inner-city Perth and Canberra all experiencing falls in excess of half a million dollars.

Former Prime Minister Malcolm Turnbull’s eastern suburbs home of Point Piper recorded the biggest fall in dollar terms, with units there losing nearly $715,000 in value – a 14.82 per cent fall from $4.82 million to $4.11 million.

Manly came in second place with losses of nearly $680,000 in house prices, representing a 13.8 per cent fall from $4.92 million to $4.25 million.

Ingleside on Sydney’s northern beaches saw house prices fall nearly $610,000 to $2.77 million, while Flinders in Melbourne suffered a $600,000 fall to $2.51 million.

Other suburbs where house prices fell by more than $500,000 include Clontarf, Dover Heights, North Bondi, Bronte, Rose Bay and Bondi Beach in Sydney, Peppermint Grove in Perth and Griffith in Canberra.

Close behind in the $400,000 range were the likes of Double Bay and Tamarama in Sydney, Red Hill – both in Victoria and Canberra – and Mulgoa at the foot of the Blue Mountains.

“Price falls are largely being led by the ‘high end’ of the market and higher value suburbs,” said PropTrack senior economist Eleanor Creagh.

“Manly and Tamarama in Sydney have all posted declines in quarterly values.

“Previously popular suburbs in the Central Coast and Melbourne’s Mornington Peninsula have also seen values ​​decline.

“It’s often the case that the upper end of the market experiences larger price declines, and at the moment it’s the suburbs that are home to more expensive properties that are seeing bigger price falls than more affordable properties.”

It’s not all bad news for homeowners, however.

House prices in some suburbs are still rising, led by Balmain East in Sydney’s inner west, which saw house prices rise more than $329,000 over the quarter to $3.48 million.

New Farm in Brisbane was second with house price growth of more than $295,000 to $2.65 million, followed by Coledale in NSW’s Illawarra region, which was up nearly $289,000 to $2.47 million.

Other suburbs where dwelling values ​​rose more than $200,000 were Newcastle East, The Rocks and Waterloo in Sydney, and Brisbane’s Bowen Hills, Tenerife, Highgate Hill and West End.

“While the current cycle of exceptional price growth is winding down Australia-wide, there are some parts of the country bucking the falling price trend,” said Ms Creagh.

“Parts of Brisbane, Adelaide and regional Australia are proving more resilient.

“With the pandemic driving a boom in remote working, housing markets in parts of regional Australia have emerged, with sea and tree changers looking for lifestyle locations, larger homes, and beachside living.”

The ongoing low supply of properties available for sale, combined with relative affordability advantages driving heightened demand, are causing prices to continue to rise in some regional areas or only just beginning to fail as the impact of higher interest rates weighs on the market.

“As the home price cycle has matured and interest rates are now rising, some suburbs in previous regional hot spots on the Sunshine Coast, and in the Southern Highlands and Geelong regions are starting to see larger price falls, with affordability advantages having been eroded since the pandemic onset,” Ms Creagh said.

“Suburbs like Lorne, Sunshine Beach, Minyama and Noosa Heads have all seen quarterly declines in unit or house values.”

She added it was a similar picture in the capital cities, with markets that led the upswing like the “lifestyle and coastal locations of the northern beaches and eastern suburbs now seeing larger price falls”.

It comes after the Reserve Bank hiked interest rates for the fourth month in a row on Tuesday.

The 50 basis-point increase at the central bank’s August meeting brings the official cash rate to 1.85 per cent, up from the record low 0.1 per cent it was up until May.

Governor Philip Lowe said the RBA had made the decision to raise the rates in a bid to drive down the current 6.1 per cent inflation figure.

In a statement, he said the path to returning to inflation under 3 per cent while keeping the economy on an even keel was something that would take time.

“The path to achieve this is a narrow one and clouded in uncertainty, not least because of global developments,” Dr Lowe said.

“The outlook for global economic growth has been downgraded due to pressures on real incomes from higher inflation, the tightening of monetary policy in most countries, Russia’s invasion of Ukraine, and the Covid containment measures in China. Today’s increase … is a further step in the normalization of monetary conditions in Australia.”

Already, the rise in interest rates has pushed house prices down in most major cities as borrowers stare down the barrel of higher monthly payments.

PropTrack’s Home Price Index shows a national decline of 1.66 per cent in prices since March, but some regions have seen much sharper falls.

“As repayments become more expensive with rising interest rates, housing affordability will decline, prices pushing further down,” Ms Creagh said earlier this week.

Last week, the Australia Institute’s chief economist, Richard Dennis, told NCA NewsWire the RBA was one of the biggest threats to the economy at the moment.

“If we keep increasing interest rates because inflation is higher than we’d like, we might cause a recession,” he said.

“Increasing interest rates won’t help us prepare for a slowing global economy … but they might actually further dampen the Australian economy.”

[email protected]

– with NCA NewsWire

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The Australian suburbs where interest rate hikes mean house prices are plunging by six figures

Interest rate hikes have caused huge drops in house prices in Australia's hottest property markets, with two elite suburbs tanking by $250,000 (pictured: auctioneer Adrianna May in Sydney)

A series of interest rate hikes have caused dramatic house price plunges of $250,000 in wealthy suburbs and the downturn is expected to get worse.

The Reserve Bank in August raised interest rates for the fourth straight month, marking the most dramatic increases since 1994 and on Thursday, the Commonwealth Bank and ANZ became the first of the big four banks to match the latest increase.

Richer postcodes and gentrified, inner-city areas had emerged the most when the cash rate was at a record-low of 0.1 per cent but these suburbs are now leading the downturn, with more monetary policy tightening expected in 2022 to tackle surging inflation.

Upmarket parts of Sydney and Melbourne are suffering six-figure falls in just three months, with Brisbane and regional areas of coastal NSW now also going backwards, after being some of Australia’s strongest performing markets in 2021.

Sydney’s north shore, covering Chatswood and Wahroonga, is the worst affected with Domain sales data showing a $250,000 plunge in the median house price during the June quarter.

A drop of 8.4 per cent in just three months took the median house price back to $2,720,000.

On the neighboring northern beaches, stretching from Manly to Palm Beach, mid-point house prices in just three months have plunged by $187,500 or 6.8 per cent to $2,582,500.

Melbourne’s upmarket inner-east, covering Kew and Box Hill, has seen its median house price fall by $107,500 in three months, with the 6.1 per cent quarterly decline taking the median house price down to $1,660,000.

On Tuesday the Reserve Bank raised the cash rate to a six-year high of 1.85 per cent.

The Commonwealth Bank, ANZ and Bank of Queensland on Thursday announced they would match the 0.5 percentage point increase on their variable mortgage rates.

The May, June, July and August rate increases of 1.75 percentage points have been the steepest since 1994.

Interest rate hikes have caused huge drops in house prices in Australia's hottest property markets, with two elite suburbs tanking by $250,000 (pictured: auctioneer Adrianna May in Sydney)

Interest rate hikes have caused huge drops in house prices in Australia’s hottest property markets, with two elite suburbs tanking by $250,000 (pictured: auctioneer Adrianna May in Sydney)

A series of interest rate hikes have caused dramatic house price plunges of $250,000 in wealthy suburbs and the downturn is expected to get worse. The Reserve Bank (governor Philip Lowe, inset) in August raised interest rates for the fourth straight month, marking the most dramatic increases since 1994

A series of interest rate hikes have caused dramatic house price plunges of $250,000 in wealthy suburbs and the downturn is expected to get worse. The Reserve Bank (governor Philip Lowe, inset) in August raised interest rates for the fourth straight month, marking the most dramatic increases since 1994

Plummeting median house prices

sydney – North shore – down $250,000 or 8.4 per cent to $2,720,000

sydney – Inner west – down $200,000 or 8.3 per cent to $2,200,000

sydney – Northern beaches – down $187,500 or 6.8 per cent to $2,582,200

melbourne – Inner East – down $107,500 or 6.1 per cent to $1,660,000

sydney – City and Inner South – down $90,000 or 4.7 per cent to $1,845,000

Brisbane – West – down $50,000 or 4.3 per cent to $1,100,000

sydney – Sutherland – down $42,500 or 2.6 per cent to $1,600,000

NSW Mid North Coast – down $33,500 or 4.5 per cent to $715,000

Brisbane – South – down $30,000 or 2.8 per cent to $1,050,000

melbourne – Inner – down $27,000 or 1.8 per cent to $1,500,000

Source: Domain data on median house price falls in the June quarter with areas grouped into Australian Bureau of Statistics SA4 areas

Sydney's north shore, covering Chatswood and Wahroonga, is the worst affected with Domain sales data showing a $250,000 plunge in the median house price during the June quarter (pictured is the North Sydney end of the Sydney Harbor Bridge)

Sydney’s north shore, covering Chatswood and Wahroonga, is the worst affected with Domain sales data showing a $250,000 plunge in the median house price during the June quarter (pictured is the North Sydney end of the Sydney Harbor Bridge)

In Sydney's inner south, taking in Newtown (pictured) and Waterloo, mid-point house prices fell by 4.7 per cent, or $90,000, to $1.845million

In Sydney’s inner south, taking in Newtown (pictured) and Waterloo, mid-point house prices fell by 4.7 per cent, or $90,000, to $1.845million

Inflation in the year to June surged by 6.1 per cent, the steepest increase since 1990 when the one-off effect of the GST in 2000 and 2001 was taken out.

What a 0.5 percentage point rate rise means

$500,000: Up $141 from $2,215 to $2,356

$600,000: Up $169 from $2,658 to $2,827

$700,000: Up $197 from $3,101 to $3,298

$800,000: Up $225 from $3,544 to $3,769

$900,000: Up $253 from $3,987 to $4,240

$1,000,000: Up $281 from $4,430 to $4,711

Increases based on Reserve Bank cash rate rising from 1.35 per cent to 1.85 per cent taking popular Commonwealth Bank variable rate from 3.39 per cent to 3.89 per cent

The consumer price index is now well above the Reserve Bank’s two to three per cent target and all the big banks are expecting another 0.5 percentage point interest rate rise in September, following on from this month’s 50 basis point increase.

Domain chief of research Dr Nicola Powell said higher interest rates meant the banks were unable to lend as much.

‘Borrowing capacity has been eroded by higher rates and a higher cost of living and there’s more to come in terms of a further acceleration in a deterioration in prices,’ she said.

‘Some Australian households, and prospective buyers, are much more sensitive to higher interest rates and strong inflation levels due to the high level of debt being carried, ultimately eroding savings.’

The banks have, since November, been required to assess a borrower’s ability to cope with a three percentage point rise in variable mortgage rates.

Gentrified inner-city areas are also in decline.

Sydney’s inner west, stretching from Leichhardt to Strathfield, saw its median house price plunge by $200,000, or 8.3 per cent in three months, to $2,220,000.

In the nearby inner south area, taking in Newtown and Waterloo, mid-point house prices fell by 4.7 per cent, or $90,000, to $1,845million.

On Sydney's northern beaches, stretching from Manly to Palm Beach, mid-point house prices in just three months have plunged by $187,500 or 6.8 per cent to $2,582,500

On Sydney’s northern beaches, stretching from Manly to Palm Beach, mid-point house prices in just three months have plunged by $187,500 or 6.8 per cent to $2,582,500

House prices in Melbourne's inner east, including iconic suburbs such as Fitzroy and Collingwood, plunged to $1.66million, at 6.1 per cent or $107,500 slide (Pictured, Brunswick Street, Fitzroy)

House prices in Melbourne’s inner east, including iconic suburbs such as Fitzroy and Collingwood, plunged to $1.66million, at 6.1 per cent or $107,500 slide (Pictured, Brunswick Street, Fitzroy)

While Newtown falls within the Inner West Council, the Australian Bureau of Statistics puts this bohemian suburb within Sydney’s inner south category, based on an SA4 mapping classification.

The property market contagion is spreading beyond Sydney and Melbourne with house prices in Brisbane’s west, stretching from Indooroopilly to Upper Brookfield, falling by $50,000, or 4.3 per cent, to $1,100,000.

The regions, which have become a popular market in their own right for young investors priced out of the big cities, also took a hit.

Demand has arisen for houses near the beach as professionals could work from home without having to commute to a big city office.

Median house prices on the New South Wales mid-north coast, covering Port Macquarie, fell by $33,500 or 4.5 per cent in the June quarter, to $715,000.

Further north, mid-point apartment prices in the Coffs Harbor region fell by $51,500 or 9.5 per cent to $491,000.

Sydney’s Sutherland area, taking in Miranda and Cronulla, saw its median house price fall by $42,500 or 2.6 per cent to $1,600,000.

It was the only area to suffer big drops in both house and unit prices.

In Sydney's inner south area, taking in Redfern (pictured), mid-point house prices fell by 4.7 per cent, or $90,000, to $1.845million

In Sydney’s inner south area, taking in Redfern (pictured), mid-point house prices fell by 4.7 per cent, or $90,000, to $1.845million

Median unit prices also plummet

sydney – Eastern suburbs – down $90,000 or 6.8 per cent to $1,230,000

sydney – Baulkham Hills and Hawkesbury – down $55,000 or 6.9 per cent to $745,000

Hobart – down $55,000 or 9.2 per cent to $540,000

NSW Coffs Harbour, Grafton – down $51,500 or 9.5 per cent to $491,000

sydney – Sutherland – down $45,000 or 5.6 per cent to $760,000

NSW Central Coast – down $38,000 or 6.1 per cent to $587,000

Victoria LaTrobe, Gippsland – down $38,000 or 10.1 per cent to $340,000

NSW Hunter Valley without Newcastle – down $35,000 or 6.8 per cent to $480,000

The Sutherland Shire also copped to $45,000, or 5.6 per cent, drop in unit prices during the June quarter to $760,000.

Sydney’s eastern suburbs saw Australia’s biggest median price drop in the unit market, with a $90,000 or 6.8 per cent decline, taking the mid-point apartment price to $1,230,000.

But the biggest fall, by percentage, in units was in Hobart, where median prices fell by $55,000, or 9.2 per cent, to $540,000.

Sydney’s flood-stricken northwest also saw a $55,000 price drop in unit prices, down 6.9 per cent to $745,000.

Both the Reserve Bank and Treasury are expecting inflation to hit a 32-year high of 7.75 per cent later this year and remain outside the RBA target band until 2024 – meaning rate rises will continue for a long while yet.

On Monday, CoreLogic data showed in July the median national home price fell for the third straight month in July by 1.3 per cent.

Its figures showed wealthy postcodes in the big cities are leading the downturn with coastal and tree change regional areas also taking a hit after previously being some of the strongest performing markets.

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Bank of England raises interest rates sharply, long recession expected

Bank of England raises interest rates sharply, long recession expected

Birmingham: Britain is facing a lengthy recession and the worst decline in living standards for a generation after the Bank of England raised interest rates sharply and forecast that inflation would hit 13 per cent by Christmas.

The bank’s lifted interest rates by 0.5 percentage points to 1.75 per cent on Thursday evening, the biggest increase in 27 years, with forecasts suggesting Britain is now facing a much bleaker economic outlook than either the United States or Europe.

A woman rides a bicycle past a job center in Shepherd's Bush in London.

A woman rides a bicycle past a job center in Shepherd’s Bush in London.Credit:AP

The bank forecast the country would slide into a 15-month recession later this year, with GDP shrinking by 1.5 per cent next year. Officials expect the slowdown to begin in the fourth quarter of this year, and continue until the end of 2023 – which would indicate a steady economic decline throughout next year.

Households are also more exposed to the energy price shock than in the US, and less protected by government measures than in the eurozone. At the same time, the British economy has also been damaged by the effects of leaving the European Union.

The cost of household gas and electricity is expected to rise in October by another 75 per cent, up from the Bank’s previous forecast of 40 per cent, to about £3,500 ($6,100) a year. By autumn energy bills, which have already risen by 54 per cent this year, will be at triple their level a year earlier.

Annual inflation is expected to rise from 9.4 per cent in June to a peak of 13.3 per cent in October, the highest level since September 1980. It will remain “very elevated” through much of next year before falling back to the 2 per cent target in two years’ time.

People walk past a closed down shop unit on Oxford Street, in London, where energy prices are spiraling.

People walk past a closed down shop unit on Oxford Street, in London, where energy prices are spiraling.Credit:AP

The pound fell 0.5 per cent against the US dollar to $US1,208, having been 0.7 per cent higher before the announcement. It was down 0.5 per cent against the euro to €1,182.

Against the Australian dollar, the pound dipped as low as $1,735 in response to the rate hike before recovering to around $1,746.

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What do super-sized interest rate rises mean for house prices?

What do super-sized interest rate rises mean for house prices?

More gradual rate increases would have led to slower declines, Oliver said, but it was ultimately the end point that had the biggest impact on property prices.

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Oliver said his price forecast is based on the cash rate reaching a high of 2.6 per cent later this year or early next. Were the rate to lift to 3.5 or 3.6 per cent, as forecast by others, prices might fall 25 to 30 per cent, but he cautioned the Reserve Bank was unlikely to lift rates to a point that could push the property market down that far.

Gareth Aird, head of Australian economics at Commonwealth Bank, said the pace and size of rate rises had sped up price declines in Sydney and Melbourne, where the market had already been cooling. The sizable hikes had also seen price falls spread.

“The Brisbane market recently turned too… and has turned in a short space of time given the speed at which the RBA has put through rate hikes,” he said.

Aird had expected prices nationally to fall 15 per cent by the end of 2023, but said the trough could now be earlier than anticipated. He has forecast the cash rate to peak at 2.6 per cent by November.

Aird said more buyers were holding back, awaiting the floor in the market, which in turn put further downward pressure on prices.

Property prices are expected to keep falling as interest rates rise.

Property prices are expected to keep falling as interest rates rise.Credit:Rhett Wyman

Center for Independent Studies chief economist Peter Tulip, who co-wrote a paper modeling the relationship between cash rate changes and property prices, said faster changes led to a faster response, but he did not expect it would make a noticeable difference to overall declines.

“As a rough rule of thumb a 1 per cent increase in the cash rate means an 8 per cent decline in house prices,” he said.

He noted it could take about two years for the impact of rates to flow through the market, and part of the picture now is a response to fixed mortgage rates starting to increase a year or more ago.

Westpac Business Bank chief economist Besa Deda said prices were falling at a sharper rate than in previous cycles, which could reflect the speed of rate hikes. While rates were rising from very low levels, and households in aggregate had built up financial buffers to handle higher repayments, the speed had affected the outlook for the property market.

Westpac has deepened its peak-to-trough forecast to a 16 per cent drop, expecting the cash rate would have to move higher, faster, to tackle inflation.

“The amount of tightening we’ve seen over the past four months…that’s probably accelerated the decline in dwelling prices, but that has been a necessity because of elevated inflation,” she said.

“If the RBA took a more casual approach… the risk is you’d end up with a higher [peak] rate, as it would take longer to bring down inflation and require more rate rises.”

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5 things to watch on the ASX 200 on Friday 5 August 2022

5 things to watch on the ASX 200 on Friday 5 August 2022

A young man sits at his desk working on his laptop with a big smile on his face due to his ASX shares going up and in particular the Computershare share price

Image source: Getty Images

On Thursday, the S&P/ASX 200 Index (ASX: XJO) gave back its morning gains and ended the day a fraction lower. The benchmark index fell 1 point to 6,974.9 points.

Will the market be able to bounce back from this on Friday and end the week on a high? Here are five things to watch:

ASX 200 expected to rise

The Australian share market looks set to end the week on a mildly positive note despite a mixed night of trade on Wall Street. According to the latest SPI futures, the ASX 200 is expected to open 10 points or 0.15% higher this morning. In the United States, the Dow Jones fell 0.25%, the S&P 500 edged 0.1% lower, and the Nasdaq pushed 0.4% higher.

Oil prices fall again

Energy producers including Beach Energy Ltd (ASX: BPT) and Woodside Energy Group Ltd (ASX: WDS) could have a tough finish to the week after oil prices tumbled again. According to Bloomberg, the WTI crude oil price is down 2.5% to US$88.42 a barrel and the Brent crude oil price is down 3% to US$93.91 a barrel. Fears of a demand slowdown after a build in US crude and gasoline inventories sent oil prices to multi-month lows.

Block results

the Block Inc. (ASX: SQ2) share price could tumble lower on Friday. This morning the payments company released its second quarter update. And while its earnings and revenue came in ahead of the market’s expectations, it guidance has disappointed. Management revealed that its Square ecosystem gross payment volume growth is expected to moderate. The Block share price has dropped 5% in after hours trade on Wall Street.

Gold price rebounds

The shares of gold miners such as Newcrest Mining Ltd. (ASX: NCM) and St Barbara Ltd (ASX: SBM) could have a decent end to the week after the gold price rebounded overnight. According to CNBC, the spot gold price is up 1.9% to US$1,810.5 an ounce. This followed a pullback in the US dollar and rising US-China tensions.

Elders rated as a buy

the Elders Ltd (ASX: ELD) share price could be great value after recent weakness according to Goldman Sachs. This morning the broker reiterated its conviction buy rating and $21.00 price target on the company’s shares. Commenting on the underperformance of its shares, Goldman said: “We believe the market is applying a higher weight to the potential of a cyclical downturn in seasonal conditions over the long term structural growth opportunities still in front of the company.”