A VIEW FROM THE TOP END

Markets:

The US Thanksgiving holiday and the associated hoopla mean light trading in the US share markets. The post-election atmosphere in America becomes more and more certain with every passing day, giving the world a dose of certainty as it looks like the world's most influential democracy will have another peaceful transition of power. The S&P 500 was up 0.76%, the Nasdaq 100 returned 0.64%, and the local ASX 200 was the real winner, returning 4.2% for the two-week period. Something can be said for having a strong Covid19 response and rising commodity prices as Australia benefits from both. The AUD finished up 0.21% against the USD ahead of crucial Black Friday shopping.

ANZ Report on Australian Housing:

Last week ANZ bank released a detailed look at the housing market in Australia. We know that everyone likes taking a sticky beak at property from time to time, so here is our extravaganza on the topic. We will look at housing prices, the rental market and construction activity.

Housing:

Next year is going to be a strong year for property. The housing market is turning a corner as prices that were falling since April, have gone flat in October, and are set to rise in the coming months. The strength is being supported by owner-occupiers, and low interest rates being offered to buyers with stable employment. Folks looking to upgrade also fall within this category. Price gains on the back of these tailwinds are expected to be 9% across the Australian capitals.

Rents:

Decimated in the initial months of the pandemic, advertised rents are beginning to lift. During the pandemic demand for rental properties fell as foreign visa workers, students, travellers and job losses in industry sectors that tend to rent over own were all effected by lockdowns. While rents are beginning to rise, it is disproportionate to cities where covid was not as prominent and resource industries prevail. The Melbourne and Sydney markets are trailing rental rises in Perth and Darwin.

Construction:

Finally, the government's new homeowner grant is hitting the mark, as housing construction and building approvals are indicating near term strength for housing. Across all states, even Victoria, house approvals rose strongly through the September quarter. In total, approvals rose 26% in the three months to September, after a 20% decline in the previous three months.

With government stimulus, superannuation withdrawls and mortgage repayment deferrals lessening the blow to those caught up in the covid storm. Repayment rates are climbing again as these measures have reduced financial stress. With potential grants for first home buyers hitting recent highs, housing looks to be heating up for next year. Where housing goes, the Australian economy follows.

Updating our checklist:

• Valuation: ASX & S&P500 levels : Valuations of the ASX have climbed with a good couple weeks for the local share market, in contrast the S&P valuation is flat. As at print date the S&P (25.5x) and ASX (22.1x) fwd PEs remain near record highs supported by government stimulus and near zero interest rates.
• Global PMIs: Economic data in Covid effected regions, like the US and Europe is choppy. Data from Australia and Asia where the spread of the virus is under relative control continues a positive ascent.
• Downgrades on guidance: As Q3 figures are announced in the US market, average sales and average earnings are surprising by 2.5% and nearly 20% respectively. Estimates for the quarter remained low, but the results are showing a better than expected recovery. Domestically in Australia, results have been positive as well as several ASX200 listed companies provided updates. Notably the banks, who are traditionally cautious are starting to unclasp their fingers from their pearls and begin lending again.
• Infection rates to slow globally: Europe and North America continue to be in the throes of a flu season pick up in Covid cases. Close quarters and the holidays have made the spread of the virus rise in recent weeks. Several local lockdowns have gone into effect in those regions. Markets have taken noticed but have not fallen as they look to other regions of the world that have coped with similar hotspots. In Australia Queensland has opened borders to Sydney after laying a crushing defeat on the Blues in State of Origin last week. The country continues on the right path with a vaccine in sight next calendar year.
• Monetary and Fiscal stimulus announcements globally: A new treasury secretary in the US was announced and she has a familiar name. Janet Yellen who used to run the US Federal Reserve will be holding the purse strings of Joe Biden's government when he is sworn in. She is a known commodity and is seen as a centrist. She is likely to side with the current US Fed position. The Trump government continues to play silly buggers with any new stimulus package, but we expect the US to join the rest of the world once the President Elect takes charge. In Australia, the fiscal budget has started to boost the housing industry, and we expect this to be a multiple year trend as our nation gets back to work.

More positive vaccine news was reported last week with AstraZeneca-Oxford vaccine joining the over 90% effective club. There are now three vaccines that have proven promising results in their preliminary clinical data. Emergency approval from the FDA is still pending for all three, but the companies are not waiting and have begun manufacturing. With 2021 most likely being a story of reopening, now is a great time to talk to your advisor if you find yourself with some extra capital. Our advisors are trained to specifically look at your goals and offer advice to help you meet those marks. There is no time like the present to get in touch. Take care and we will touch base with everyone in a few weeks with our 2020 close out piece, with a look towards 2021.

Regards,