Interest Rate Hikes Impact Consumer Confidence as Rents Continue to Rise
Consumer confidence in Australia has taken a hit following a series of interest rate hikes, while rents continue to rise due to a supply and demand imbalance. The ANZ and Roy Morgan weekly survey as well as the Westpac and Melbourne Institute monthly survey have both indicated that consumer confidence remains below long-term averages. Rising prices and increased borrowing costs are major factors contributing to this decline.
However, there may be a glimmer of hope on the horizon. The Reserve Bank of Australia has decided to keep interest rates on hold for the second consecutive month, which could potentially improve consumer sentiment. It should be noted that these surveys may also reflect a lag in the impact of cash rate movements.
Many households have been shielded from the full impact of interest rate hikes through low fixed-rate mortgages. Additionally, variable-rate customers have yet to experience the effects of all 12 cash rate increases, as there is a delay in the flow through to bank accounts.
Unfortunately, renters are likely to face further financial strain. Rents have been steadily increasing, and this trend is expected to persist due to a combination of factors such as increased migration, lower construction rates, and a preference for smaller household sizes.
To gain a better understanding of consumer spending patterns, the Australian Bureau of Statistics is set to release its monthly household spending indicator, while the business community will be examined through the National Australia Bank’s latest business survey and the ABS’s monthly business turnover indicator.
Despite the challenging economic conditions, the business sector has displayed relative resilience. However, forward-looking indicators suggest a potential softening in the future.
In international markets, the Australia Securities Exchange is expected to open flat to lower following a decline on Wall Street. Disappointing earnings from tech giant Apple and signs of a slowing jobs market contributed to the negative sentiment. The US S&P 500, Nasdaq Composite, and Dow Jones Industrial Average all experienced losses.
Apple reported a 1.4% decline in sales for the fiscal third quarter and projected a continuation of this downturn. The company is making significant investments in artificial intelligence research and development. In terms of job growth, the US Labor Department reported that 187,000 jobs were added in July, with June’s data being revised downward.
Looking ahead, the week will also see Reserve Bank officials making several appearances, including a speech on climate change’s influence on Australian financial markets. Furthermore, senior officials will participate in a parliamentary economics committee hearing.
As Australia enters earnings reporting season, the benchmark S&P/ASX200 index ended the week with a slight gain, while the All Ordinaries also saw a modest increase.
Overall, the impact of interest rate hikes on consumer confidence and the ongoing rise in rents has created economic challenges. While the Reserve Bank’s decision to pause interest rate increases temporarily may offer some hope, the full effects of previous hikes are yet to be fully felt. The coming week’s releases and events will provide further insight into consumer spending, business sentiment, and the overall economic climate.