Australian sharemarket gains after US-EU deal

Welcome to the On the Money podcast. It's Monday, the 28th of July. I'm Laurie Lowira filling in for Ricardo Gonçalves, and it was a big start to the business week with the US and EU announcing a major trade deal. How that announcement impacted local markets. Liz Maddock has been speaking with Hebi Chen, market analyst for Vantage Australia.

Liz Maddock

just how much has that trade deal between the US and the EU affected the ASX today?

Hebe Chen

I think that you, based on today's market market, do taking this as a pretty positive impact to the market. I think all firsthand is that it's a milestone to the past three months of the tariff negotiations and chaos. Now that deal has introduced a pretty much stability and predictability into the market's confidence. And on the other hand, given that the US has done the deals with most of the trading partners and

Hebe Chen

The end results that for example, today is a 15% versus a 30% that initially announced they're all better than expected and that's another source of the optimism coming from. We do see the market push up about a 3% today at the beginning of the week. Still a bit of cautious that week because ahead of the quarterly CPI reading, but mostly I think the market feel a bit positive about the deal.

Liz Maddock

Also, I'm just wondering if, Trump's trade negotiations strategies are affecting our markets in terms of how risk averse or risk appetites are changing in, in terms of, yeah, all of these deals, when they are made, being better than expected and people realising that maybe Trump's bark is worse than his bite.

Hebe Chen

yes, indeed, I think that Trump has applied his quite a textbook typical negotiation strategies, which we can tell from his negotiation with China, with Japan, they always starting from a very worst case. And then moving forward to making the case, probably.

Hebe Chen

Worse than the first expected and to try to boost the confidence. And as you look back for the past 3 months, you see the markets to tumble quite significantly after liberation day in April and then jump up significantly, which means that the strategy do works in terms of the

Hebe Chen

Reshaping the expectation there, but at the end of the day, and you see the most market now has at its all-time high, including the US market and the Australian market, let's feel that the market does get used to this strategy and brings the predictable.

Hebe Chen

What result will end in. And that also is seeing that the China's and US deals now on the negotiation table this week seems also help the market to continue to feel optimistic about the deal could be made by the end of the day.

Liz Maddock

So what were the most interesting movies for you today?

Hebe Chen

I think we are heading into a week that is set to be very, very eventful and the quite heavy data point. I think for this week, we do have quite a busy schedule for the Australian. I do mention that the inflation data will be definitely on the front and centre for the Australian watchers, not only because that will give us a comprehensive.

Hebe Chen

View about the pressure in Australia, but also I think RBA to mention this is the final data point to cement whether or not the 25 basis point will happen in August. I think that's the number one priority watching. Apart from that, I also keep my eyes on the upcoming US earnings. We do have the Apple, Meta, Microsoft, Amazon.

Hebe Chen

We report the endings from Wednesday to Thursday. They are all set to reshape the market confidence and definitely will move the market this week. So I think this is a week of very busy to keep all the traders and investors occupied.

Liz Maddock

Absolutely, and just in terms of today, we've had a pretty, a pretty broad base rise, but has that been offset by some weakness in

Hebe Chen

resources?

Hebe Chen

Yes, indeed, we do think that the two sectors perform particularly well. Healthcare, boosted by CSO and telecoms, boosted by Telstra. I think we do see a bit of the rotation that healthcare used to be one of the worst performing in the past.

Hebe Chen

Couple years now we're seeing that since the broad market optimism have been supporting the confidence and risk appetite, do see the more interest into that. Mining sectors potentially still a bit of the uncertainty for the, for example, the oil price has dropped for the 3 straight weeks that will keep the investor traders a bit cautious about the economy outlook and as well as the demand for the commodity, and that's probably another reason that to.

Hebe Chen

wait on the miners and the energy sector.

Hebe Chen

And

Liz Maddock

just lastly, we are expecting this tariff negotiations or it's tariff truce with China to be extended past the, the August 1 deadline. What are you expecting in the coming weeks with that?

Hebe Chen

yes, certainly, I think we are talking about the two largest economy of the world, so definitely they will impact the have a pretty broad impact. I think if that the deal can be made this week for another 2 months or 3 months extension, I think that will be a win-win situation for both because both nations will buy the precious time. For the US, they can help to building up their supply chain resilience for China, they have more time to find an alternative market to hate the impact. So I think if we do have a deal.

Hebe Chen

By the end of this week, there will be a positive and then the impact for the Australia, I think they were positive for the minors, the positive for the Aussie dollars and Australian market as well.

Laurie Lawira

Liz Maddock speaking with Heebi Chen there. Out today is the quarterly CommSec State of the states report. Topping it is Western Australia, but South Australia's had a strong start to the year. For more, here's Chief CommSec economist Ryan Feldsman.

Ryan Felsman

in our latest report on the state of the states, Western Australia ranks #1 across 8 key economic indicators for a 4th consecutive report. The West is going particularly well at the moment. It is top of the rankings for 3 out of the 8 key indicators, and we have seen particular strength there in retail trade, housing finance, and business investment in particular. So Western Australia

Ryan Felsman

at the moment is benefiting from their strong population growth, that's translating into low unemployment and buoyant housing activity. So, retail spending is firm there on the back of that, and supported by a resilient export industry on the back of a pickup and iron ore prices, which are broadly at the highest level in 5 months, we have seen Western Australia top of the pops yet again.

Laurie Lawira

Talk me through some of the key areas where Western Australia is far is doing far better than say the eastern states.

Ryan Felsman

what's driving Western Australia's economy at the moment is strong population growth. So it's population growth at 2.4% year on year is well above the national average at 1.7%, and Western Australia's enjoying a renaissance post-COVID, and that isolation during the COVID years has attracted people to the state. At the same time, we have seen very firm public spending, particularly from a very popular government over there.

Ryan Felsman

And on the back of that, we have seen that attraction of workers and also population more broadly, and that's contributed to a big lift in Perth home prices. So, home prices in Perth have been increasing by a double digit level over the course of the last 12 months in particular. That's then translated into strong demand for home loans in particular. We've also seen a pick up in dwelling investment as and business activity has been quite strong on the back.

Ryan Felsman

Of that. Also at the same time, we have seen household spending supported by low unemployment. The unemployment rate in WA at the moment is around 4%. And on the back of that, consumer confidence has been higher. And we also have seen a broad recovery in the export sector with a pickup in chinese stimulus and demand for iron ore in particular, which is now at 5 month highs, which is supporting that sector, which is a pillar of the WA economy.

Laurie Lawira

Talk to me a little bit more about the home lendings space at the moment we saw that New South Wales was one

Laurie Lawira

of the weakest.

Ryan Felsman

Yes, so there's a contrast to the East Coast. So, Sydney's highly indebted households are still struggling with higher mortgage repayments, with interest rates lifting up until recently. We have seen a cut from the Reserve Bank of 25 basis points in February.

Ryan Felsman

In May, and on the back of that, we have seen lower borrowing costs, but they are still elevated at the moment and that higher household debt is weighing on consumer spending in New South Wales and also the East Coast in general, if you look at the ACT and also Melbourne as but

Ryan Felsman

Generally speaking, we have seen constraints around affordability and lower dwelling investment in New South Wales affect demand for home loans in particular, but we have seen a bit of a turnaround in home prices in Sydney in particular, in the last couple of months. So certainly with interest rates expected to be cut.

Ryan Felsman

twice this year from those levels that we have seen, we could see a pickup in both home prices, but also retail spending in New South Wales on the back of that. But housing finance has been weaker than the other states due to this.

Laurie Lawira

Let's talk about South

Ricardo Gonçalves

Australia and its rise up the rankings.

Ryan Felsman

Yeah, so South Australia has benefited from certainly an improvement in its labour market. We have seen fairly low unemployment in South Australia. Business investment has remained quite buoyant, supported by business-friendly government policies, and on the back of that, South Australia now ranks 2nd in the CommSec state of the state's report card.

Ryan Felsman

We have seen a pick up in construction work and dwelling starts. Home prices in Adelaide have been the strongest or close to the strongest across the country over the last 12 months as well. We have seen a pick-up in population growth there as well. So certainly South Australia has been a strong performer over the last couple of years when it comes to its economic outcomes.

Ricardo Gonçalves

This SBS on the Money podcast is provided for informational purposes only. The content on this podcast should not be understood as constituting advice or a recommendation. It is not personal advice and does not consider your personal circumstances or objectives. You should contact a licensed professional before making any financial decision.

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