AUSTRALIAN MARKET WRAP
The Reserve Bank of Australia raised the official interest rate by a further 50 basis points to 2.35 per cent on Tuesday. This was the fifth consecutive monthly increase, and the fourth 50 basis point rise. Estimates by the Reserve Bank and other economists would suggest that the rate is now at or near the long term ‘neutral’ rate for the Australian economy; that is the rate at which monetary policy is neither stimulatory nor contractionary. However, citing expectations that inflation will remain high this year, before taking much of 2023 to return to the top of the target band, the Bank suggested it would continue tightening monetary policy for some months yet. The Governor’s statement indicated that the ongoing strength in inflation is being supported by a number of domestic factors, including strong economic growth helped by the record terms of trade, and a significant tightness in the labour market. The Bank highlighted it is continuing to monitor developments in household behaviour and confidence as the full impact of both higher inflation and interest rates feeds through.
The domestic economic and political debate was this week heavy with the themes from the Australian Government’s ‘Jobs & Skills Summit’. Although the Prime Minister’s pledges on union bargaining were high profile, the theme of productivity and women’s participation was highlighted in a keynote speech that was considered insightful. Migration targets, and labour force participation for older workders, those with disabilities, and First Nation’s Peoples was also high on the agenda. An increase in the immigration cap (to 195,000 a year) was announced, and widely welcomed, as was additional funding for visa processing to clear the backlog of applications.
The Australian Financial Review analysed the results from the corporate reporting season and considered the possible insights about the economy. It saw five key themes: the economy is in the twilight zone (industrial companies will see a range of pressures as the economy starts to slow); labour shortages could hurt earnings in two ways (lost revenue and higher costs); pricing power is strong - for now; we need to look beyond the index (there are currently many ‘speeds’ in the economy); the best CEOs are thinking three moves ahead.
Australian indices
ASX 200: Fell 2.45 per cent over the week, to 6826.5 points at the close on Tuesday.
All Ordinaries: Also feel, 2.41 per cent in the past week to 7055.9 points at the close on Tuesday.
Currencies
As at the close on 6 September, the AUD/USD was down 1.52 per cent on last week, at 0.6800. The AUD/RMB was also down slightly, 1.20 per cent, in the week to 4.7193.
Commodities
New data show Australia has recorded its 13th consecutive monthly current account surplus, after booming coal prices drove a record $43 billion trade surplus.
The value of the country’s exports increased by 14.7 per cent in June, while the value of imports increased by just 4.6 per cent, according to data released by the Australian Bureau of Statistics on Tuesday.
Government Bonds
In the context of monetary policy tightening in Australia and across the developed world, there is ongoing commentary about market concerns that there will be a liquidity crunch as the Federal Reserve runs off the significant amount of bonds on its balance sheet.
Government Bond Yields (Source: Bloomberg)
|
NAME |
COUPON |
PRICE |
YIELD |
1 DAY |
1 MONTH |
1 YEAR |
|
GTAUD2Y:GOV Australia Bond 2 Year Yield |
2.75
|
99.58 |
2.98% |
0 |
+40 |
+302 |
|
GTAUD5Y:GOV Australia Bond 5 Year Yield |
4.75 |
105.93 |
3.34% |
-1 |
+46 |
+269 |
|
GTAUD10Y:GOV Australia Bond 10 Year Yield |
1.25 |
80.54 |
3.64% |
0 |
+56 |
+239 |
|
GTAUD15Y:GOV Australia Bond 15 Year Yield |
3.75 |
98.81 |
3.84% |
-1 |
+56 |
+221 |
Reserve Bank of Australia Rates (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) |
|
2.35 |
+0.50 (6 September 22) |
+0.5 (6 September 22) |
0.10 |
Property
There was discussion about how rising interest rates are likely to impact commercial property returns. Aligned with this, was reporting of renewed institutional investor interest in retail real estate, including ASX-listed players Centuria, Home Consortium and SCA Property who are said to be are taking a close look at a $500 million portfolio of five neighbourhood malls in south-east Queensland.
Following on from the Treasurer’s speech in which he suggested that superannuation funds should be investing in the ‘nation building’ sectors such as social/affordable housing, there were announcements about the Australian Government’s plans to back this up with funds from the National Housing Infrastructure Facility (NHIF). Commentators suggested that this would encourage investment in the sector more generally.
Alongside this was reporting of activity that is occurring in the commercial property market as tenants switch to better quality property as they seek to bring teams back into offices. This highlighted, also, the inflation hedge nature of the investment.
Elanor Investors Group
One of Stoic and Elanor Investors Group’s cornerstone wildlife park investments, Featherdale Sydney Wildlife Park, celebrated its 50th Anniversary this week.
Venture capital
It was reported that venture capital investment is now flowing at about half the rate of this time last year. New data apparently show that there was a ‘second cliff’ in July and August, driven by a dearth of late-stage deals, and activity has stabilised for the moment at less than $230 million per month.
That said, it has also been revealed that one venture capital fund has defied the market and raised over $100 million in 24 hours. Some of Australia’s most successful local founders have bought into OIF Ventures’ new oversubscribed $140 million fund, seemingly undeterred by the slowdown in private sector funding rounds.
Also in a sign of difficult times for startups, administrators have reportedly been appointed to biotech Ellume Health, only a year after it was awarded a $300 million contract for COVID-19 testing kits.
Company Updates
Cardihab
To help spread the word about the importance of cardiac rehabilitation, including digital models of care, cardihab has developed a series of infographics.
Wildlife Drones
CEO and founder of Stoic investee Wildlife Drones, Dr Debbie Saunders, talked to the host of Executive with a Cause about what inspired her to establish this innovative approach to animal tracking!
