Wisest place for savings: Shares hit decade highs

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Demolitions hit record highs; Consumer confidence; Chinese inflation; Weekly payroll & jobs; Demolitions

  • What happened? In the latest Westpac-Melbourne Institute Index of Consumer Sentiment survey, 28.7 percent of respondents said the ‘wisest place for savings’ was ‘in the bank’. But while the bank was most favoured as a destination for savings, 12.1 per cent of consumers now regard the sharemarket as the ‘wisest’ place for savings – the highest reading in a decade.
  • Also of note: The number of demolitions hit record highs in the March quarter. National payroll jobs rose by 8.8 per cent over the year to May 22 with wages up by 11.5 per cent over the period. Consumer confidence fell by 5.2 per cent in June, reflecting the Melbourne lockdown. Skilled job vacancies rose 1.9 per cent to 12-year highs in May. The Assistant Governor at the Reserve Bank, Christopher Kent, again has noted that the preconditions for higher cash rates won’t be met before 2024. And Chinese consumer prices rose by 1.3 per cent over the year to May with producer prices up 9 per cent – the strongest pace since 2008.
  • Implications: The outlook for equities remains positive given the continued significant fiscal and monetary stimulus. The data on demolitions is important in calculating the net addition of new homes in a region.

The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. The payroll and wage data helps government with decisions on assistance measures for households and businesses. The Chinese data have implications for the currency markets and therefore exporters and importers.

 What does it all mean?

  • Over the past few weeks Aussie consumers have been more reflective, scaling back some of the exuberance exhibited in April. The Melbourne lockdown has certainly been a key factor weighing on confidence. Booming home prices have also made consumers more cautious. And the lift in petrol prices to 2-year highs would have also caused people to worry about the outlook for their finances.
  • But if the Melbourne lockdown ends as expected on Friday, virus case numbers again gravitate to zero and vaccination numbers ramp up, consumer confidence levels will rebound. A similar situation was evidenced from February to April after the Sydney northern suburbs cluster was controlled. Interest rates are still super low, the job market is in strong shape and governments remain keen to spend.
  • Consumers still remain broadly confident about the future and they are still on the look-out for the best returns in the low interest rate environment. And given worries about the sustainability of lofty home prices, the focus is shifting to the sharemarket. In June around 1 in 8 people say that the wisest place for savings is the sharemarket. Meanwhile, consumer perceptions of real estate as the wisest place for savings are not far off record lows.
  • Broadly, however, consumers remain conservative. Almost half of all consumers say that the wisest place for savings is in the bank or should be used to pay down debt. Retailers need to take note that consumers are still keen to spend, but keen to spend wisely.
  • Finally we can get better a guide on the net additions of new homes following the release today of the number of demolitions. The data is important for builders, retailers and suppliers of services to the housing industry to determine work levels and the net movement in population.

What do you need to know?

Consumer confidence – June

  • The Westpac-Melbourne Institute Index of Consumer Sentiment fell by 5.2 per cent in June to a five-month low of 107.2. The survey was taken over the period May 31-June 5. All five major components of the index fell in June.
  • Of the sub-components, the ‘time to buy a dwelling’ index fell by 7.1 per cent – the fifth straight decline. The ‘house price expectations’ index fell by 3.6 per cent in June. The ‘unemployment expectations’ index rose (worsened) by 8.2 per cent after hitting decade lows in May.
  • Wisest place for savings. Includes: Bank (28.7 per cent); Pay debt (18.8 per cent); Shares (12.1 per cent); Real Estate (9.5 per cent); Don’t Know (7.7 per cent); Superannuation (7.3 per cent); and ‘Spend it’ (5.2 per cent).

Demolitions – March quarter

  • The Bureau of Statistics (ABS) reported that there was a record 6,140 demolitions of dwellings in the March quarter, up from 4,721 a year ago and up from 4,832 in March quarter 2019. https://www.abs.gov.au/articles/national-state-territory-level-dwelling-demolition-approvals#key-statistics

Weekly payrolls and wages – Week ending May 22

Labour account – March

Job Advertisements – May (preliminary)

China inflation – May

  • In the year to May, Chinese consumer prices were 1.3 per cent higher than a year ago (expectations: +1.6 per cent) while producer prices rose by 9 per cent over the period (expectations: +8.5 per cent) – the strongest annual growth rate since 2008.

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