Stoic Asset Management: Market update: 1 February 2023
Economic and market news
Ahead of the first monetary policy meeting of the year in Australia (on 7 February) there has been a range of new economic data released. On Tuesday, the Australian Bureau of Statistics published information on retail sales in December. There was a surprise 3.9 per cent fall in turnover in the month, alongside a revision upwards in the already strong November figures (to 1.7 per cent). This was said to reflect early shopping for Christmas by consumers in Black Friday and other discounting events. The fall follows 11 consecutive months of growth in retail sales, and caused markets to pull back expectations of the peak in interest rates.
The latest inflation data show that prices rose by 1.9 per cent in the quarter, and 7.8 per cent in the year, to end-December. This was a 33 year high. Markets and commentators expressed the hope that this outturn is the peak in inflationary pressure, despite the fact it is below the 8 per cent forecast by the Reserve Bank of Australia (albeit above consensus market expectations of 7.5 per cent). The figure was driven by increases in the cost of domestic and international travel, and electricity prices. Price pressures are said to remain in the economy, meaning even that any softening in inflation is likely to be gradual. More increases in official interest rates are expected.
Alongside speculation of what the central bank will do at its first policy meeting of 2023, there was further analysis of prevailing retail interest rates. Some commentators noted that it is not just fixed rate borrowers that are yet to feel the pain of the cumulative rate rises, but a considerable proportion of variable rate loans have also not risen by the full amount. This means that there is a significant looming ‘mortgage cliff’ for many homeowners, which will have an impact of the trajectory of the economy.
In overseas economic news, the US was reported to have posted strong economic growth in Q4 2022, despite fears of a recession ahead. The 2.9 per cent outturn was a slowdown from the previous quarter (3.2 per cent) but was described as ‘solid’.
There was widespread discussion about the impact the reopening of China on markets, commodity prices, and the world economy. While there has already been a surge in demand for major commodities, in particular those important to Australia’s export market, such as iron ore, there are concerns that the economic path for China will not be smooth.
Meanwhile, the International Monetary Fund has suggested that the world economy may have reached its ‘turning point’. It has revised up its global growth forecasts for 2023 (from 2.7 per cent to 2.9 per cent) as China and emerging markets accelerate.
Australian indices
ASX 200: Has risen 6.44 per cent, over the period since the last Stoic Market Update on 21 December, to 7476.7 points at the close on Tuesday; it fell 0.07 per cent on the day.
All Ordinaries: Has risen 6.76 per cent since 21 December, closing at 7686.1 points on Tuesday; it fell 0.19 per cent on the day.
Government Bonds
Government Bond Yields (Source: Bloomberg)
|
NAME |
COUPON |
PRICE |
YIELD |
1 DAY |
1 MONTH |
1 YEAR |
|
GTAUD2Y:GOV Australia Bond 2 Year Yield |
3.25
|
100.28 |
3.11% |
-1 |
-28 |
+224 |
|
GTAUD5Y:GOV Australia Bond 5 Year Yield |
2.25 |
94.98 |
3.28% |
0 |
-40 |
+172 |
|
GTAUD10Y:GOV Australia Bond 10 Year Yield |
4.50 |
108.06 |
3.55% |
+2 |
-50 |
+165 |
|
GTAUD15Y:GOV Australia Bond 15 Year Yield |
3.25 |
92.35 |
3.87% |
+3 |
-45 |
+174 |
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) |
|
3.10 |
+0.25 (6 December 2022) |
+0.25 (6 December 2022) |
0.10 |
Currencies (source:RBA)
As at the close on 31 January, the AUD/USD was 0.7037. The AUD/RMB was 4.7547. Both rates have fallen in the past week but were higher than at the time of the last Stoic Market Update on 21 December.
Venture Capital
It was reported that Australia has fallen from 26th to 91st on the Global Economic Complexity Scale. The Australian Financial Review stressed the importance of addressing this, or risk becoming an uncompetitive, serviced-based, economy. Its solutions to the issue focused on facilitating investment in scaling deep tech manufacturing small to medium-sized enterprises that produce the type of unique, sophisticated and high-value products that drive economic complexity.
Stoic’s investees have had a very busy and successful summer:
ENA Respiratoryhas secured a US$4.38 million agreement with the US Department of Defense to support ongoing research and development for its broad-spectrum antiviral innate immunomodulator.
Ferronovaannounced that it in its latest funding round it has secured $11 million to advance nanotech image-guided cancer therapy. Stoic Venture Capital is excited to again be part of funding this important work. Ferronova has also been awarded a $3 million Federal Government grant for further clinical studies.
Lenexa Medical has had its pressure-injury prevention technology approved by the New Zealand Medicines and Medical Devices Safety Authority. Its pressure-injury monitoring systems has also been selected as a finalist for the 2022 Victorian Premier's Design Awards.
Morse Micro has announced new partnerships and use cases, been recognised as one of the most relevant IoT developments of 2022, and been nominated for three IoT Global Awards!!
Property
Increased migration, including the recent opening of China’s borders, was said to be putting further pressure on rents and apartment prices. However, it was also suggested that planning laws and interest rate rises mean difficult business conditions for developers.
Weekly auction clearance rate data show 68 per cent of properties sold, well up on the rate in the previous two quarters (58 per cent in December and 56 per cent in the September quarter). This was said to be despite the new year tripling of properties for sale. Commentators suggested that sellers are now ‘meeting the market’ on lower prices, and expect prices to continue to fall until about September.
Office rents in both Brisbane and Perth were said to be outstripping prices rises in the major capital cities, thanks to a ‘robust resources sector’ and a degree of catch up.
