Are house prices about to fall?

1. Are house prices going to fall? 

2. Pump-and-dump schemes are criminal

3. ANZ in hot water over bond trading

4. Optus' pitch to recover its reputation

THIS WEEK'S BIG STORY

Commodity prices, in particular iron ore, are tumbling and that's bad for Australia

Falling commodity prices hurt Australia, and Australian companies, more than most. That is because we export so much iron ore, coal, gas and other commodities. In the 2023 financial year, iron ore contributed $125 billion to export revenue, and made up nearly half of BHP's revenue. The federal and state governments receive hundreds of billions of dollar in royalties and corporate tax payments from the big miners. A key reason why the federal budget is in surplus is commodity prices. Mining also employs around 300,000 people, mostly in WA and Queensland.

What is happening?

Commodity prices are falling as hopes that Beijing will reinvigorate the Chinese economy fade. Iron ore prices fell below $US100 a tonne over the past 24 hours. They haven't traded consistently at that level since 2020. Coal prices are way below their peaks of 2023 but are still elevated and have been fairly steady over the past year. The benchmark commodity is copper. Its movements tend to reflect the global economy. It peaked in May and has been tumbling ever since. Aluminium, tin and nickel are also lower, while gold is an exception, trading at a relatively high price.

Why does it matter?

Analysts agree that the outlook depends on China. For the June quarter, the world's second largest economy grew by 4.7 per cent, below forecasts of 5.1 per cent. The absolute number is large - Australia is growing at barely one per cent - but relative to previous growth rates, China is slowing appreciably. Beijing wants the economy to expand by five per cent this year, but that looks problematic. Outside China, growth is improving in some emerging economies, according to the IMF. That is good news. But to move the needle, economies like Australia needs Beijing's help. 

Which stocks suffer most?

The share prices of the big iron ore miners - BHP, Fortescue Metals and Rio Tinto - have all gone backwards over the past 12 months. Diversified miner South32 digs up bauxite, alumina, copper, silver, lead, zinc, nickel and coal and its share price is off 23 per cent over the past year. Generally the coal companies have underperformed, but hardest hit have been the lithium and nickel producers, as prices for those commodities tumble on the back of more supply from Asia, and less demand from manufacturers.

What's the outlook?

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Thanks for reading my opinions on the week's biggest stories.

- Sean Aylmer

House prices in Australia don't tend to fall unless there's a massive shock like COVID. But that doesn't mean they're going to rise either. The latest CoreLogic data shows the national rolling 28-day change in house prices across the country is 0.5 per cent. That isn't bad but the trend is undeniably down. CoreLogic says it's a reflection of low consumer sentiment amid stubbornly high inflation and a rise in the number of properties for sale. Buyers might be holding off until they see what's going to happen to interest rates. Or maybe people are being priced out of the market and simply can't afford to purchase a house. Working against that argument, and promoting house price growth, is the lack of supply. Last week there were 17 per cent fewer listings than typical for this time of year. And we still have an influx of people from overseas to house. All markets are local. Perth is flying, Melbourne is in the toilet, Adelaide and Brisbane are doing pretty well while Sydney is somewhere in the middle. Overall, it seems like the heat has come out of property prices.

I genuinely hope that ASIC is able to successfully prosecute the individuals behind the Telegram channel "pump-and-dump" scheme. That's assuming they're guilty, which hasn't been tested. Steve Madden, the footwear group, is the most famous pump-and-dump stock thanks to the Hollywood hit The Wolf of Wall Street. Pump-and-dump schemes have been going on forever. But they are criminal. In the Telegram case, ASIC alleges four individuals were behind the "ASX Pump and Dump Group" Telegram channel. Back in 2021 ASIC warned members of the channel that they were engaging in illegal activity, and the regulator has been chasing them ever since. ASIC claims hundreds of members were attempting to manipulate the share prices of ASX listed small caps, mostly resource companies. The regulator alleges the share prices of these companies soared, in some cases almost 100 per cent, before collapsing. The losers were those not privy to the information that the stock was being bid higher, so the informed few could sell at a profit. There is no place for that on the ASX.  

Within 72 hours of Joe Biden saying he won't run again for President, Kamala Harris emerged as a force to be reckoned with. Even before officially becoming the nominee for the Democrats, she is campaigning hard, declaring that November's election will be "a choice between freedom and chaos". She raised $150 million from donors in three days. All very rah-rah and exciting for the Democrats, but the reality is Donald Trump is still favourite to win the November poll. That's what the betting markets say. (Mind you, a Reuters/Ipsos poll overnight suggested Harris was two percentage points ahead of Trump, no doubt helped by the initial enthusiasm from widespread media coverage.) Harris has reinvigorated the Democrats campaign and already she is travelling through important working class states like Wisconsin, Michigan and Pennsylvania. These are the states that will make or break her. She needs to turn them away from Donald Trump. Let's see what the polling in those states say before getting too excited about Harris' chances. For his part, former President Trump has been crowded out of the media spotlight over the past few days - something he will hate. And this is why Harris is a much better choice than Biden. She is new, and novel. She is less boring than Biden. Over the past few days she looks like the cat that didn't just eat the canary but got to the whole aviary. That enthusiasm is infectious. As Trump has demonstrated, many US voters think as much about appearance as substance. The US election has always been interesting. Now it is a contest as well. 

Number two telco Optus has a load of work to do to recover its reputation, following both data leaks and outages over the past two years. Making it tough at the moment is that the new CEO, Stephen Rue, isn't turning up until November. So plaudits for its decision to offer customers a one-week free trial of its mobile network. Importantly, you can access the trial without giving Optus payment details, that you later have to cancel. During the trial, customers will have access to 30 gigabytes of data, unlimited standard national calls and 1000 standard national text messages over a seven-day period. Customers can keep their current number and current provider, and use an app, or eSIM, to switch between services. Good on Optus.

Bond trading - not a phrase that gets the blood pumping. But bonds are a very important part of financial markets. A bond is simply an 'IOU'. The government issues them. So too the banks and corporates. A super fund or a retail investor, and everyone in between, might buy a bond. The return the investor gets depends on the safety of the bond - less for government bonds, more for corporate bonds. Federal government bonds are the safest of the lot and need to be scrupulous. Enter ANZ. The corporate watchdog, ASIC, is examining the big bank's role in the sale of $14 billion worth of government bonds last April. There are only a handful of organisations that governments trust to deal with massive bond issuances like this, and it has emerged that ANZ provided the federal government with inflated bond trading data. Essentially ANZ boosted its resume as it was trying to win the right to be involved in the bond issuance. Now it is being investigated by ASIC for allegedly manipulating what's known as the "benchmark 10-year futures rate", which is akin to the cost of the bond. ANZ is in hot water on this one. Who said bond trading wasn't exciting?

5. "A choice between freedom and chaos"

ASK FEAR & GREED