Economic and market news
The International Monetary Fund (IMF) downgraded its forecasts for economic growth in Australia in 2023 to 1.9 per cent (from 2.2 per cent). The IMF's expectations, while softer than previously, are still above the growth rate predicted by the Reserve Bank of Australia (1.8 per cent) in its August update.
Meanwhile, some commentators were supportive of the Reserve Bank’s decision to temper its interest rate trajectory in the face of more economic uncertainty, despite some evidence that inflation may not have slowed. Food inflation is said to have hit around 8 per cent in the supermarkets already, with the recent significant floods in Victoria likely to seriously intensify the pressure on prices, particularly for fresh vegetables. The weaker Australian dollar will also have the effect of ‘importing’ inflation from overseas.
In overseas economic news, new data on US inflation show price pressures remain unexpectedly strong, driven by the services sector. Inflation in September was 0.4 per cent, twice what was expected, and 8.2 per cent over the year – the highest rate since 1982. More worryingly, core inflation also exceeded expectations, at 0.6 per cent for the second consecutive month, and 6.6 per cent over the year. The strong outturns were seen as locking in the US Federal Reserve to another 0.75 percentage point interest rate rise at its November policy meeting. Share markets fell on the news, while bond yeilds and the dollar surged again.
New Zealand’s inflation rate for the September quarter has also been recorded higher than expected, at 2.2 per cent for the quarter and 7.2 per cent for the year. This was said to ‘vindicate’ the Reserve Bank of New Zealand’s aggressive interest rate rises. A 17 per cent increase in food and vegetable prices was reportedly behind the significant increase in inflation.
The UK has reported an unexpected second monthly contraction in the space of three months, significantly increasing the chances of it tipping into a technical recession (two consecutive quarters of negative growth). Political instability, as well as the dire economic outturns, weakened the pound again, putting more pressure on inflation.
Australian indices
ASX 200: Rose 2.02 per cent over the week, to 6779.2 points at the close on Tuesday.
All Ordinaries: Rose 1.93 per cent in the past week, closing at 6976.2 points on Tuesday.
Government Bonds
Government Bond Yields (Source: Bloomberg)
|
NAME |
COUPON |
PRICE |
YIELD |
1 DAY |
1 MONTH |
1 YEAR |
|
GTAUD2Y:GOV Australia Bond 2 Year Yield |
0.25
|
93.85 |
3.31% |
-6 |
+13 |
+318 |
|
GTAUD5Y:GOV Australia Bond 5 Year Yield |
2.75 |
96.02 |
3.60% |
-9 |
+11 |
+244 |
|
GTAUD10Y:GOV Australia Bond 10 Year Yield |
1.75 |
82.07 |
3.91% |
-11 |
+20 |
+218 |
|
GTAUD15Y:GOV Australia Bond 15 Year Yield |
3.25 |
88.44 |
4.20% |
-8 |
+31 |
+208 |
Reserve Bank of Australia (Source:RBA)
|
RBA CASH RATE TARGET (RBATCTR:IND) CURRENT (per cent) |
MOST RECENT DECISION (percentage points) |
MOST RECENT CHANGE (percentage points) |
1 YEAR PRIOR (per cent) |
|
2.60 |
+0.25 (4 October 2022) |
+0.25 (4 October 2022) |
0.10 |
Currencies(source:RBA)
Foreign exchange markets continue to be volatile. The evolving global economic temperature, highlighted this week by new and weaker forecasts by the IMF for its annual meetings, has strengthened the US dollar. The political situation in the UK, including a now almost complete reversal of the new government’s announced ‘mini budget’, a new Chancellor of the Exchequer, and talk of a change of Prime Minister only 40 days into her leadership, has enhanced the unsettled market environment.
As at the close on 18 October, AUD/USD rose 1.15 per cent on last week, to 0.6322. The AUD/RMB also rose 1.15 per cent, in the week to 4.5477.
Commodities
In the context of Rio Tinto’s September production report, it announced that, what it beleives to be, Australia’s best undeveloped iron ore project is a step closer to development. A preliminary agreement was struck to begin studies on a plan to bring the new mine into production before 2030, potentially unlocking a very large and high-grade source of iron ore. The company’s decision to progress with the project was taken as a signal of its long term belief in the strength of the iron ore demand (driven by the Chinese economy).
Venture Capital
Stoic Venture Capital published an article about its investment philosophy.
BioScout
Stoic investee BioScout announced that it had been accepted as a supplier for the Farms of the Future Agtech Catalogue. This $48 million NSW Government program means eligible farms can be reimbursed up to 70 per cent of the costs of using BioScout's automated disease detection to increase their productivity and sustainability.
Forcite
Stoic investee Forcite has announced that Tucker Powersports will be Forcite Helmet System's exclusive distributor in the USA.
Morse Micro
Stoic investee Morse Micro was announced as one of the top ten most innovative companies in Australia in 2022, by The Australian Financial Review and Inventium.
Property
New data from CoreLogic suggest that 80 per cent of suburbs across the country have seen falls in housing prices in the third quarter of 2022. This was said to be nearly double the proportion that had seen softer values in the June quarter.
It was reported that rents for industrial property have surged 30 per cent across parts of Sydney, and 20 per cent in Melbourne, amid record low vacancy rates.
As part of the NSW Government’s plans to reform property taxes in the state, it has announced that first-home buyers will be able to choose to pay an annual land tax instead of one-off upfront stamp duty. Commentators suggested that this would put ‘cash back in the hands’ of these buyers and hence ‘shield’ property values in this segment of the market, amid a wider housing price downturn.
