Inflation is higher. But is it 'materially' higher?

That's the big question

Pendal

October 2023

AUSTRALIA'S latest inflation data was higher than expected.

The September quarter inflation number came out at 1.2% for both headline and underlying (trimmed mean) measures. This was above expectations of 1.1% and 1% respectively.

In terms of headline inflation, it's now fair to say the current pace is about 4% annually.

Last quarter it was 0.8%, dragged 0.2% lower by fuel prices. This quarter was 1.2%, dragged 0.2% higher by fuel.

The increase in underlying inflation would be of greater concern for the Reserve Bank.

A quarterly rate of 1.2% would not have been welcomed.

Under the hood

Looking under the hood would add to the RBA's concerns.

Market services remain stubbornly high. Housing inflation remains at over 2% a quarter, driven in part by utilities.

At least rents have now caught up with leading indicators at 8% annually.

Anyone who recently received their council rates will not be surprised by the 4.4% increase there. At least it only happens annually.

Government subsidies once again had an impact.

The government is already suppressing utility prices and now also childcare prices - though the childcare changes are permanent. Childcare costs were down 13%, subtracting 0.1% from this quarter's CPI.

Here you can see a breakdown of the ABS's latest inflation data:

What's material?

Focus now turns to the RBA's November 7 board meeting.

We have two communications recent communications to consider.

The RBA's latest minutes mentioned a "low tolerance" to upside inflation surprises.

And in her maiden governor speech, Michelle Bullock mentioned "the board will not hesitate to raise the cash rate further if there is a material revision to the outlook for inflation".

The question is - what is material?  

In August the RBA forecast year-end inflation to be 4.1% and 3.9% underlying. It's early days, but Q4 is expected to be around 0.9%.

This would leave headline at 4.3% and underlying at 4.1%.

The RBA will release updated forecasts in its next monetary policy statement on Friday November 10 (though it will reference them in their rate decision beforehand).

Is 0.2% higher "material" or a breach of the "low tolerance"? That will be the big question come November 7.

Markets have 60% chance of a hike in November and a cash rate 0.35% higher by early next year.

At these levels there is no clear trade, since it will be line ball.

If pushed, I think Michelle Bullock will be keen to show her inflation fighting credentials by putting in one hike, even though she was probably hoping today's number would let her off the hook.

If the market gets close to pricing two hikes in the next few weeks we will go long duration. But until then today's reaction seems sensible and fair.

Long bond yields largely ignored Wednesday's moves. Ten-year bonds remain around 4.75%.  

As always, they will rightly or wrongly be more captive to US bond moves and the latest iteration of oil prices.

Author: Tim Hext, Portfolio Manager and Head of Government Bond Strategies

Funds operated by this manager:

This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current as at December 8, 2021. PFSL is the responsible entity and issuer of units in the Pendal Multi-Asset Target Return Fund (Fund) ARSN: 623 987 968. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient's personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance. Any projections are predictive only and should not be relied upon when making an investment decision or recommendation. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections. For more information, please call Customer Relations on 1300 346 821 8am to 6pm (Sydney time) or visit our website www.pendalgroup.com

Future Quality Insights: Focus on the knowns in an era of unknowns

Yarra Capital Management

October 2023

Funds operated by this manager:

The Rise of Meta: AI, Innovation, and Sustainable Growth

Insync Fund Managers

October 2023

Meta's resurgence can be attributed to its focus on cost optimization and a robust rebound in advertising revenues. Profiting from the burgeoning wave of AI, Meta also ventured into the development of its 'expansive language model', bolstering its ability to drive innovative applications. Notably, its AI prowess paved the way for novel advertising solutions tailored to the needs of businesses which we believe will deliver sustainable earnings growth for many years.

The potential of an even more profound transformation from the deployment of AI-powered agents within WhatsApp, Messenger, and Instagram looms large. Their capacity to substantially enhance the search and shopping functionalities of these massive platforms promises a paradigm shift in both user experiences and business interactions. Meta's journey from hardship to revival imparts valuable insights into dispelling the 'crowded trade' theory. Firstly, adaptability is paramount in our now dynamic world. Companies that can pivot and innovate fast, thrive. Secondly, an enduring long-term vision is a potent asset. Founder-led firms driven by unique insight often excel beyond their peers. Moreover, investors must remember that markets are not always efficient and so deliver exploitable opportunities.

Funds operated by this manager:

Insync Global Capital Aware Fund, Insync Global Quality Equity Fund

Disclaimer
Equity Trustees Limited ("EQT") (ABN 46 004 031 298), AFSL 240975, is the Responsible Entity for the Insync Global Quality Fund and the Insync Global Capital Aware Fund. EQT is a subsidiary of EQT Holdings Limited (ABN 22 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX: EQT). This information has been prepared by Insync Funds Management Pty Ltd (ABN 29 125 092 677, AFSL 322891) ("Insync"), to provide you with general information only. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. Neither Insync, EQT nor any of its related parties, their employees or directors, provide and warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it. Past performance should not be taken as an indicator of future performance. You should obtain a copy of the Product Disclosure Statement before making a decision about whether to invest in this product.

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Airlie Quarterly Update

Airlie Funds Management

October 2023

Emma Fisher, Portfolio Manager, chats to Airlie's Analysts Joe Wright and Jack McNally about their recent US trip and findings from their discussions with companies, Aristocrat, QBE and SANTOS which are holdings in the Airlie Australian Share Fund.

Funds operated by this manager:

Airlie Australian Share Fund

Important Information: Units in the fund(s) referred to herein are issued by Magellan Asset Management Limited (ABN 31 120 593 946, AFS Licence No. 304 301) trading as Airlie Funds Management ('Airlie') and has been prepared for general information purposes only and must not be construed as investment advice or as an investment recommendation. This material does not take into account your investment objectives, financial situation or particular needs. This material does not constitute an offer or inducement to engage in an investment activity nor does it form part of any offer documentation, offer or invitation to purchase, sell or subscribe for interests in any type of investment product or service. You should obtain and consider the relevant Product Disclosure Statement ('PDS') and Target Market Determination ('TMD') and consider obtaining professional investment advice tailored to your specific circumstances before making a decision to acquire, or continue to hold, the relevant financial product. A copy of the relevant PDS and TMD relating to an Airlie financial product or service may be obtained by calling +61 2 9235 4760 or by visiting www.airliefundsmanagement.com.au.

Past performance is not necessarily indicative of future results and no person guarantees the future performance of any financial product or service, the amount or timing of any return from it, that asset allocations will be met, that it will be able to implement its investment strategy or that its investment objectives will be achieved. This material may contain 'forward-looking statements'. Actual events or results or the actual performance of an Airlie financial product or service may differ materially from those reflected or contemplated in such forward-looking statements.

This material may include data, research and other information from third party sources. Airlie makes no guarantee that such information is accurate, complete or timely and does not provide any warranties regarding results obtained from its use. This information is subject to change at any time and no person has any responsibility to update any of the information provided in this material. Statements contained in this material that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of Airlie. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon.

Any third party trademarks contained herein are the property of their respective owners and Airlie claims no ownership in, nor any affiliation with, such trademarks. Any third party trademarks that appear in this material are used for information purposes and only to identify the company names or brands of their respective owners. No affiliation, sponsorship or endorsement should be inferred from the use of these trademarks.. This material and the information contained within it may not be reproduced, or disclosed, in whole or in part, without the prior written consent of Airlie.

Doing good, feeling good: How investors can

benefit from the resources sector's key role in decarbon

Janus Henderson Investors

October 2023

Funds operated by this manager:

Janus Henderson Australian Fixed Interest Fund, Janus Henderson Australian Fixed Interest Fund - Institutional, Janus Henderson Cash Fund - Institutional, Janus Henderson Conservative Fixed Interest Fund, Janus Henderson Conservative Fixed Interest Fund - Institutional, Janus Henderson Diversified Credit Fund, Janus Henderson Global Equity Income Fund, Janus Henderson Global Multi-Strategy Fund, Janus Henderson Global Natural Resources Fund, Janus Henderson Tactical Income Fund

This information is issued by Janus Henderson Investors (Australia) Institutional Funds Management Limited ABN 16 165 119 531, AFSL 444266 (Janus Henderson). The funds referred to within are issued by Janus Henderson Investors (Australia) Funds Management Limited ABN 43 164 177 244, AFSL 444268. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Past performance is not indicative of future performance. Prospective investors should not rely on this information and should make their own enquiries and evaluations they consider to be appropriate to determine the suitability of any investment (including regarding their investment objectives, financial situation, and particular needs) and should seek all necessary financial, legal, tax and investment advice. This information is not intended to be nor should it be construed as advice. This information is not a recommendation to sell or purchase any investment. This information does not purport to be a comprehensive statement or description of any markets or securities referred to within. Any references to individual securities do not constitute a securities recommendation. This information does not form part of any contract for the sale or purchase of any investment. Any investment application will be made solely on the basis of the information contained in the relevant fund's PDS (including all relevant covering documents), which may contain investment restrictions. This information is intended as a summary only and (if applicable) potential investors must read the relevant fund's PDS before investing available at www.janushenderson.com/australia. Target Market Determinations for funds issued by Janus Henderson Investors (Australia) Funds Management Limited are available here: www.janushenderson.com/TMD. Whilst Janus Henderson believe that the information is correct at the date of this document, no warranty or representation is given to this effect and no responsibility can be accepted by Janus Henderson to any end users for any action taken on the basis of this information. All opinions and estimates in this information are subject to change without notice and are the views of the author at the time of publication. Janus Henderson is not under any obligation to update this information to the extent that it is or becomes out of date or incorrect.

The growth thematics immune to economic volatility

4D Infrastructure

October 2023

Global Portfolio Manager and CEO, Sarah Shaw, speaks with Bennelong Account Director, David Whitby, about the long-term growth opportunities for infrastructure despite the current economic and geopolitical environment. 

"The growth opportunity is still largely underappreciated. We see five key growth dynamics within the infrastructure space that are ... completely immune to the short-term economic events. So while we do have a great deal of volatility in the market at the moment, and a great deal of geopolitical and economic uncertainty, these growth thematics underpin the infrastructure investment case and are going nowhere, regardless of what happens in the short term."

• 0:43 - Infrastructure's growth opportunities beyond the short-term volatility
• 3:45 - How technology and AI are shaping the infrastructure sector 
• 7:00 - 4D's approach to dealing with policy and regulation 
• 9:37 - Capturing and mitigating investment risk in the current economic landscape

Funds operated by this manager:

4D Global Infrastructure Fund (Unhedged), 4D Global Infrastructure Fund (AUD Hedged), 4D Emerging Markets Infrastructure Fund

For more information about 4D Infrastructure, visit https://www.4dinfra.com/

^{The content contained in this audio represents the opinions of the speakers. The speakers may hold either long or short positions in securities of various companies discussed in the audio. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely as an avenue for the speakers to express their personal views on investing and for the entertainment of the listener.}

Global Quarterly Update

Magellan Asset Management

October 2023

Arvid Streimann discusses recent market volatility and the risks to watch out for, while Nikki Thomas shares her observations from her recent US trip and updates us on how the portfolio is positioned for the evolving investment landscape. (Viewing time: 15 mins)

Funds operated by this manager:

Magellan Global Fund (Hedged), Magellan Global Fund (Open Class Units) ASX:MGOC, Magellan High Conviction Fund, Magellan Infrastructure Fund, Magellan Infrastructure Fund (Unhedged), MFG Core Infrastructure Fund

Important Information: 

This material has been delivered to you by Magellan Asset Management Limited ABN 31 120 593 946 AFS Licence No. 304 301 ('Magellan') and has been prepared for general information purposes only and must not be construed as investment advice or as an investment recommendation.  This material does not take into account your investment objectives, financial situation or particular needs. This material does not constitute an offer or inducement to engage in an investment activity nor does it form part of any offer documentation, offer or invitation to purchase, sell or subscribe for interests in any type of investment product or service. You should obtain and consider the relevant Product Disclosure Statement ('PDS') and Target Market Determination ('TMD') and consider obtaining professional investment advice tailored to your specific circumstances before making a decision about whether to acquire, or continue to hold, the relevant financial product. A copy of the relevant PDS and TMD relating to a Magellan financial product may be obtained by calling +61 2 9235 4888 or by visiting www.magellangroup.com.au.

Past performance is not necessarily indicative of future results and no person guarantees the future performance of any financial product or service, the amount or timing of any return from it, that asset allocations will be met, that it will be able to implement its investment strategy or that its investment objectives will be achieved. This material may contain 'forward-looking statements'. Actual events or results or the actual performance of a Magellan financial product or service may differ materially from those reflected or contemplated in such forward-looking statements.

This material may include data, research and other information from third party sources. Magellan makes no guarantee that such information is accurate, complete or timely and does not provide any warranties regarding results obtained from its use. This information is subject to change at any time and no person has any responsibility to update any of the information provided in this material.  Statements contained in this material that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of Magellan. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. No representation or warranty is made with respect to the accuracy or completeness of any of the information contained in this material. Magellan will not be responsible or liable for any losses arising from your use or reliance upon any part of the information contained in this material.

Any third party trademarks contained herein are the property of their respective owners and Magellan claims no ownership in, nor any affiliation with, such trademarks.   Any third party trademarks that appear in this material are used for information purposes and only to identify the company names or brands of their respective owners. No affiliation, sponsorship or endorsement should be inferred from the use of these trademarks. This material and the information contained within it may not be reproduced, or disclosed, in whole or in part, without the prior written consent of Magellan.

Why Cash Is (Still) Not King

Redwheel

October 2023

Funds operated by this manager:

Sources:

[1] Indices: Developed Market Equities (DM) - MSCI World Index; Developed Market Value Equities (DM Value) - MSCI World Value Index; Developed Market Growth Equities (DM Growth) - MSCI World Growth Index; Emerging Market Equities (EM) - MSCI Emerging Markets Index; Global Bonds - Bloomberg Global Aggregate Bond Index; Commodities - Bloomberg Commodities Index; US T-Bills (Cash) - Bloomberg US Treasury Bill Index.

Key Information
No investment strategy or risk management technique can guarantee returns or eliminate risks in any market environment. Past performance is not a guide to future results. The prices of investments and income from them may fall as well as rise and an investor's investment is subject to potential loss, in whole or in part. Forecasts and estimates are based upon subjective assumptions about circumstances and events that may not yet have taken place and may never do so. The statements and opinions expressed in this article are those of the author as of the date of publication, and do not necessarily represent the view of Redwheel. This article does not constitute investment advice and the information shown is for illustrative purposes only.