NEWS
18 Oct 2024 - Hedge Clippings | 18 October 2024
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Hedge Clippings | 18 October 2024 Most economists are now convinced that yesterday's monthly labour force numbers released by the ABS have ruled out any chance of a rate cut this side of Christmas. For the record, for the past six months the unemployment rate has stayed steady around 4.1%, with 64,000 people joining the workforce in September, and the number of unemployed falling by 9,000. As the ABS pointed out, employment has risen by 3.1% in the past year, faster than the civilian population growth of 2.5%, taking the employment-to-population ratio to a new historical high of 64.4%. Even so, there are now 616,000 unemployed people, 90,000 more than there were in September last year, although that number is 93,000 fewer than there were pre-Covid when unemployment was at 5.2%. If those numbers sound confusing to you, join the club, but the ABS seemed to be able to make sense of them, as we suppose real economists do, which is what matters. Of course, behind the numbers were more details which caused a slanging match between the Treasurer Jim Chalmers and the opposition employment spokes-person, Michaelia Cash, who pointed to the fact that the majority of jobs growth in the past year - around 70% - has been in the government or "non-market" sectors of health, education and public service, leading to claims that the government was simply increasing the size of the bureaucracy to create jobs. Drilling down further, about 90% of the increase in hours worked was also in the non-market, and presumably lower-paid, sector. If you're one of those who are now employed the argument is academic (like so much of what goes down in Canberra) - a job is a job, and wages are wages - but it does emphasise another aspect of the current two speed nature of the economy. Private sector jobs are more likely to be higher paid, and one would think they in turn lead to additional flow on economic (jobs) growth. Meanwhile, back to the RBA, who had forecast that unemployment would be rising to 4.3% by the end of the year, which barring any unforeseen surprises, now seems unlikely. Hence the view from economists that the RBA will lag their overseas counterparts who have already started to cut rates in line with easing inflation. A speech this week from Sarah Hunter, RBA Assistant Governor (Economic) was entitled "Inflation Expectations - Why They Matter and How They Are Formed" and gave an inkling into the RBA's thought process. We're neither going to try to summarise it here (you can follow the link yourself if you'd like to) - nor claim to fully understand it all, but possibly the old saying that "perception is reality" sums it up: If everyone's perception is that inflation is high (and the media and one side or other of politics would suggest that it is) then that is the reality. As a result, it affects people's and businesses' economic decisions. However, Hunter finished her speech with the conclusion (amongst others) that it's a good news story with respect to expectations: Short-term expectations appear to be converging towards long-term ones, and recently they have been working to bring price expectations down faster. So maybe the RBA will deliver the experts (and borrowers) a surprise before Christmas after all? News & Insights New Funds on FundMonitors.com Manager Insights | Seed Funds Management Market Commentary - September | Glenmore Asset Management September 2024 Performance News Bennelong Concentrated Australian Equities Fund Glenmore Australian Equities Fund |
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11 Oct 2024 - Hedge Clippings | 11 October 2024
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Hedge Clippings | 11 October 2024 November 5th is shaping up as an important date, not only in the local calendar, but globally as well, when Americans finally go to the polls. While all the focus has been on the race for the White House, elections for both the Senate and the House of Representatives take place on the same day. Given the rancorous state of US politics, whoever ends up in the White House may not enjoy a smooth administration if they don't control both houses of Congress as well. And whichever candidate wins the Oval Office, there's a strong chance they won't control the other two houses. News & Insights New Funds on FundMonitors.com Manager Insights | Altor Capital Trip Insights: LatAm (Part 1) | 4D Infrastructure September 2024 Performance News Bennelong Australian Equities Fund Seed Funds Management Hybrid Income Fund Argonaut Natural Resources Fund 4D Global Infrastructure Fund (Unhedged) |
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4 Oct 2024 - Hedge Clippings | 04 October 2024
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Hedge Clippings | 04 October 2024 The seasonally adjusted August Household Spending Indicator results released by the ABS earlier today - produced from source data of credit card spending from participating banks, supermarket transactions, and new vehicle sales - were unchanged month on month, with the July and June results re-adjusted downwards to -0.5% and -0.1% respectively. Given recent wage increases, energy assistance, and Stage III Tax cuts, all the indications are that consumers are keeping their hands in their pockets - at least when it comes to reaching for the plastic, or doing the weekly grocery shop. Over 12 months the number was +1.7% - best described as muted, particularly given annual inflation is running at double that figure, depending on which number (Seasonally adjusted, excluding volatile items or annual trimmed mean) one looks at. Household spending has been declining from a post COVID induced high of 29% in August 2022, with the latest figure particularly driven by goods (-0.3%) vs. services, including air travel, catering, and accommodation (+0.4%). Peering through the breakdown, it seems Australia's two speed economy, or two speed demographics is real. Those doing it tough are doing without, while those that can afford travel, catering and accommodation are still doing OK. As the ABS numbers are only "experimental" and cover credit card spending and supermarket data it will have to wait until the next set of Retail Trade numbers are released on 31 October, a day after the next CPI result. The RBA will then have a few days to consider the numbers prior to their next meeting scheduled for the 4th and 5th of November, the second day of which inconveniently clashes with the Melbourne Cup. With the RBA announcement at 2:30 and the Cup starting at 3:00, there are going to be some conflicts of attention, except of course in Melbourne itself when Race Day is marked by a Public Holiday. Prior to that, and starting next week, there are multiple speeches, remarks and panel appearances from various RBA members, including Deputy Governor Hauser, and Assistant Governors Christopher Kent and Sarah Hunter, which are only likely to maintain the Bank's current stance - inflation is the number one game, and they won't be hurried into cutting rates until they're certain it's been put back in the bottle. Over in the US it looks as if inflation might have been tamed, with market watchers waiting to see the US jobs report for September, due to be released overnight tonight to gauge if the Fed's next cut will be another 0.5%. The median forecast is for 150,000 new jobs in September, leaving the unemployment rate at 4.2%, in which case the Fed might only cut 0.25%. While the US economy seems on the right track, a combination of the port workers' strike which started this week, and critical escalation of the conflict between Israel, Hamas, Hezbollah, and Iran, could derail that. Meanwhile, the Trump and Harris camps continue to trade claim and counter claim, while spending untold millions on advertising in what looks like a photo finish for the White House - also on Cup Day, November 5th - which from a distance looks too close to call. News & Insights New Funds on FundMonitors.com 10k Words | Equitable Investors August 2024 Performance News Delft Partners Global High Conviction Strategy |
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27 Sep 2024 - Hedge Clippings | 27 September 2024
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Hedge Clippings | 27 September 2024 On the face of it, this week's inflation figure of 2.7% for the 12 months to August was good news, and within the RBA's target band of 2-3%. However, as always, the devil was in the detail. Firstly, the numbers were cushioned by a reduction in electricity costs of 17.9% thanks to State (WA, Queensland, and Tasmania) and Federal government hand-outs, which will not recur. Secondly, excluding volatile items such as fruit & veg, and fuel, the figure rose to 3.0%. Meanwhile the annual trimmed mean - also excluding the fall in electricity and fuel of -7.6% was higher still at 3.4%. Finally accommodation costs have remained high, with new dwellings up 5.1% and rental prices up 6.8%, both of which have been stubbornly high for over 12 months. As such, the RBA declined to follow the US Fed's example and cut rates (although noting these are still above Australia's number of 4.35%), with the board's statement using now familiar terminology such as "inflation remains above target and is proving persistent", plus "the outlook remains highly uncertain" and "returning inflation to target is the priority" to reinforce their point. With no RBA meeting next month, and the next CPI results from the ABS not due until October 30th, the market's main pre-occupation will be this weekend's AFL Grand Final, followed by the Rugby League the following weekend. Meanwhile, the Bledisloe Cup remains an elusive goal for yet another year. News & Insights New Funds on FundMonitors.com Trend Following in Uncertain Markets | East Coast Capital Management August 2024 Performance News
Argonaut Natural Resources Fund Bennelong Twenty20 Australian Equities Fund |
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20 Sep 2024 - Hedge Clippings | 20 September 2024
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Hedge Clippings | 20 September 2024 The US Federal Reserve eased rates by 50 bps earlier this week, ending months of speculation - not over the fact that they were going to cut, but by how much. Now the speculation will be on the size and timing of the next cut, or cuts, with J.P. Morgan predicting two more totalling 1.25% this year, and more in 2025. In reality, they cut not only because US inflation is coming down and under control, but because the underlying economy is slowing more than the numbers suggest. Next Tuesday it will be Australia's turn, but there are not many, if any, economists expecting a cut based on the messages that have been coming out of the RBA. As evidenced by an article outlining 9 insights on the Australian economy for the June quarter published by the ABS, Australia is stuck - and the RBA with it - between a rock and a hard place. Sticky inflation at 3.8% has the RBA's hands tied. Growth of 0.2% for the June quarter was "modest" and only positive thanks to government spending adding 0.2%. GDP per capita fell 1% over the year to June. Household spending fell 0.2%, yet wages grew 4.1%. Household saving was at its lowest rate since 2007. Capital investment dipped (again). The labour market remained tight, with unemployment at 4.1% (now 4.2%). Admittedly, the article reflects the 3 months to June. Since then, wages have increased, stage 3 tax cuts have kicked in, and state and federal government energy support has been introduced, all of which may assist household spending or saving, but won't improve inflationary pressures. No wonder the government is wanting to blame the RBA, particularly with an election around the corner, the result of which is looking increasingly uncertain. Hence our very own political version of Flanders and Swann* have been pressuring the RBA to cut rates, and blaming them for smashing the economy. In fact, if the RBA were to cut next week it would immediately lead to cries of government interference into what should be an independent reserve bank. *By an extraordinary coincidence, given a couple of glasses of pinot noir over a Friday lunch, Chalmers and Swan sounds a little like the legendary Flanders and Swann. of the 1950's era musical comedy act, "At the drop of a hat" and its sequel, "At the drop of another hat" which wowed audiences in the days before YouTube. The real Flanders and Swann wrote numbers such as "The Reluctant Cannibal", which by today's standards would be considered politically incorrect, while the current Chalmers and Swann are being politically clumsy. News & Insights New Funds on FundMonitors.com Investment Perspectives: Is the US headed for recession? | Quay Global Investors Market Commentary - August | Glenmore Asset Management August 2024 Performance News Skerryvore Global Emerging Markets All-Cap Equity Fund Bennelong Concentrated Australian Equities Fund Bennelong Emerging Companies Fund |
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13 Sep 2024 - Hedge Clippings | 13 September 2024
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Hedge Clippings | 13 September 2024 After the last couple of weeks' war of words - or maybe that should be attacks on the RBA from both the treasurer Jim Chalmers, and ex-treasurer, Wayne Swan - life returned to normal this week, if there is such a thing. If nothing else, the less than subtle comments from each of them only served to reinforce the importance of central bank independence. The RBA may not be perfect, but having monetary policy dictated, or influenced by, the government of the day would be a dangerous and slippery slope. News & Insights Manager Insights | Seed Funds Management Emerging Middle Class Megatrend | Insync Fund Managers August 2024 Performance News Bennelong Australian Equities Fund Seed Funds Management Hybrid Income Fund 4D Global Infrastructure Fund (Unhedged) Bennelong Long Short Equity Fund |
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6 Sep 2024 - Hedge Clippings | 06 September 2024
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Hedge Clippings | 06 September 2024 In last week's Hedge Clippings we "expected that the phone lines would be running hot between Jim Chalmers and the RBA to encourage a rate fall" following the July CPI figure. While we're pretty sure the phone lines did in fact run hot, what we didn't expect from the Treasurer was a broadside delivered via multiple media appearances, including his now infamous claim that the RBA was smashing the economy with high interest rates. The government is obviously keen not to be seen as responsible for any household financial pain, but such a direct and openly critical comment - although he subsequently denied that it was meant as criticism - made the issue very public, which it was no doubt intended to do. As we've previously commented, the government and the RBA are each pulling on the opposite ends of the same rope. The RBA is trying to curb inflation by keeping rates elevated and reducing demand, while the government is trying to offset the effects of inflation by increased spending, supporting above CPI wage increases, and handouts, subsidies, and tax cuts for all. Having dispensed with the former governor, Philip Lowe, and replaced him with his deputy, Chalmers finds there's been no change in policy, or message - only the messenger. Meanwhile the message was reinforced again on Thursday by Michele Bullock with a speech given at the annual Anika Foundation lunch entitled "The Cost of High Inflation" which not only suggested there would be no easing before Christmas, but that it would be 2026 before the bank's inflation target was met. She was careful to emphasise that conditions, or the numbers, may change between now and then, in which case the RBA would adjust policy settings accordingly. While that might suggest an earlier timeline for easing if conditions allow, it could also mean the opposite. Meanwhile, we expect Jim Chalmers to continue with his line that the government is doing all that it can to help stretched household budgets - which it is - but it is certainly not helping the RBA fight the costs of high inflation. Of course he also has one eye (or maybe both) on the upcoming election. Rather than continue the public spat he started, it seems Dr. Chalmers called for some back-up in the form of ex (Labor of course) treasurer Wayne Swan, who maintained the pugilistic tone by accusing the RBA of "punching itself in the face" and so continuing the issue. Chalmers and Swan may be trying to shift the blame for household mortgage pain, but borrowers don't seem to be pulling their collective heads in based on housing finance statistics released today by the RBA. Investors led the charge, with new investor loans up by 35% over July, 2023, new owner occupied loans increased by 21%, and owner occupied first home buyer loans were up 19.7%. As the ABS noted, these numbers were only partially driven by higher property prices. So in between accusations of "smashing the economy", and "punching itself in the face", the RBA is steadfast in its fight against inflation, the government is pouring more fuel into the economy, while the property market - or at least the financiers of it and real estate agents - aren't taking any notice. Finally on the political front, Bill "Wee Willy" Shorten announced his exit this week, having tried, but never made it to the lodge, in large part due to his policy to cancel franking credits in the lead up to the 2019 election, when he and shadow treasurer Bowen "misread" the level of investor anxiety about the move. Yet another case of politicians being totally out of touch with both the electorate, and common sense. Even so, maybe Shorten can see the writing on the wall for the next election? News & Insights New Funds on FundMonitors.com What not being born and not dying is doing to investments | Insync Fund Managers Stock Story: Stryker | Magellan Asset Management |
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30 Aug 2024 - Hedge Clippings | 30 August 2024
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Hedge Clippings | 30 August 2024 This week's July CPI figure was the first downward movement since last December, falling 0.3% to 3.5% depending on which indicator one chose - Headline (3.6%), Seasonally Adjusted (3.6%), Excluding Volatile Items (3.7%), or Trimmed Mean (3.8%). However, all fell, thanks in most part to the fall of 5.1% in electricity prices, which in turn fell thanks to a range of state and federal handouts. It seems unlikely that the improvement, while welcome, will sway the RBA at their next meeting, on 24 September, but Michele Bullock may give some clues when she's due to have a "fireside chat" next Thursday at a Women in Banking & Finance event in Sydney. In the mean-time we expect the phone lines will be running hot between Jim Chalmers and the RBA to encourage a rate fall, which is unlikely. All the Bank's prior comments and commitments suggest they won't be fooled by one-off numbers, however welcome, triggered by governments - state and federal intent on re-election. Today's flat July retail sales figures may assist somewhat, but the August CPI figure due inconveniently on 25th September, the day after the RBA's meeting and announcement, will also be impacted by further flows of government rebates. By which time of course we'll be totally focused on footy finals of one code or another, with the AFL plus the Wallabies second Bledisloe game on the 28th, and the NRL a week later. Prior to that of course, the Sydney Swans play the GWS Giants this week-end. Who would have thought that two Sydney teams playing in a final a possibility even 10 years ago? News & Insights 10k Words | Equitable Investors Market Commentary | Glenmore Asset Management July 2024 Performance News Seed Funds Management Hybrid Income Fund Bennelong Twenty20 Australian Equities Fund Insync Global Quality Equity Fund |
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23 Aug 2024 - Hedge Clippings | 23 August 2024
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Hedge Clippings | 23 August 2024 Firstly, let's start with an apology: Last week's "Hedge Clippings" incorrectly stated that the July CPI numbers would be released on Wednesday this week, whereas they actually aren't due until Wednesday next week. As not much has changed in our view since last Friday, we could simply "rinse and repeat" and see if anyone noticed, but that would be lazy to say the least. For the record however, and for those who missed last week's edition, expectations are that inflation will remain stubbornly in the 4% region (July 3.8%, or 4% excluding fuel, fruit and veg, and holiday travel, or 4.1% trimmed mean) and if so, the RBA are unlikely to change their current monetary policy settings. If anything, the risk is that any deterioration in the CPI numbers, and they'll make good on their threat to raise rates, rather than keep them steady. What was noticeable in Tuesday's release of the RBA's minutes of their August meeting was an argument for increasing rates, or holding them steady, but nothing about the case for easing. That option still seems to be off the table for at least the next few months. However, that didn't stop three of the big four (and a host of smaller lenders in response) from dropping their term deposit rates this week, with cuts as large as 0.8% in some cases, as discussed earlier today on FNN with Nick Chaplin from Seed Funds Management. While disappointing for the banks' depositor clients, it accentuated the attractiveness of other fixed income and credit options in the managed fund sector, where returns (although not bank guaranteed) of 8-10% are readily available. Meanwhile in the USA, where a September rate cut seems all but assured, and with the main question being the choice between 0.25 and 0.50%, and then how many moves will follow before Christmas. Fed Chair Jerome Powell is due to speak at a symposium of central bankers in Jackson Hole, Wyoming on Friday, US time, which will hopefully clarify his thinking. Over in the US the concern is more focused on the potential for economic weakness, or worse. Elsewhere the political focus in the US has all been on the Democratic National Convention and the nomination of Kamala Harris to lead the Democrats to what seemed an unlikely presidential victory just a month or so ago. Harold Wilson (British PM 1964-1970, and again 1974-1976) once said a week is a long time in politics. To date we've seen an attempted assassination, and a change in candidate, so with 74 days to go to the US election, anything can happen and we won't make a prediction - other than it will come down to voter turnout on the day in the six so called "swing" states. News & Insights Manager Insights | Seed Funds Management What's Social Proofing? | Insync Fund Managers Stock Story: National Grid | Magellan Asset Management July 2024 Performance News Skerryvore Global Emerging Markets All-Cap Equity Fund Argonaut Natural Resources Fund Bennelong Australian Equities Fund Glenmore Australian Equities Fund Bennelong Concentrated Australian Equities Fund |
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16 Aug 2024 - Hedge Clippings | 16 August 2024
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Hedge Clippings | 16 August 2024 Next Wednesday's July CPI result will be crucial for a number of reasons - particularly for those with a mortgage (more on that later) but also for the reputation of the Treasurer and PM, who keep spinning the story of what a wonderful job they're doing with the economy and helping overcome the cost of living crisis, while at the same time doling out financial support left, right and centre, which is helping to keep inflation around 4% a year. As the chart below from the ABS shows, in spite of what the RBA is doing to try to rein in inflation, Chalmers and Albo aren't helping the cause - probably as the "cause" in their case is the looming election. From the peak of 8.4% in December 2022, inflation fell to 3.4% a year later, only to move back up and is stuck around the 4% mark, and if anything, trending up, and not down, as the government would like you to believe. Unfortunately for them, their spin can't overcome the budget stress which various sections of the community are feeling. Even if next Wednesday's result provides a move in the right direction, the messages coming from the RBA are pretty clear: Deputy governor Andrew Hauser, one of the more colourful and entertaining central bankers to step out of Martin Place (or any other central bank for that matter), took a pot shot at market gurus (a.k.a. economists and forecasters) trying to shape or comment on monetary policy, claiming the space was "a world of winners and losers, gurus and charlatans, geniuses and buffoons" and often only good to claim headlines, or support their space on their respective soapboxes. Governor Michele Bullock was absolutely clear earlier today in her remarks to the House of Representatives' economics committee, saying it is "premature to be thinking about rate cuts" as the RBA's forecast is that trimmed mean inflation won't return to the 2-3 per cent target band until the end of 2025. Clearly the RBA has decided to leave no doubts in anyone's mind what to expect - or if it comes to that what they think of the market's speculation. Elsewhere this week the CEO of the CBA, Matt Comyn gave some insights into part of the problem with inflation and the cost of living crisis - it's not affecting everyone equally, but is particularly affecting those under 50. That sounds pretty obvious, but with much of the cost of living stress being built into mortgage repayments, and although two thirds of the population own their own home, (2020 statistics from the ABS) around 37% have a mortgage, and 30% are debt free. So without having the exact science behind the numbers, it's probably fair to say that while everyone understands prices are higher than they were a year or two ago, around half the population "just keep calm and carry on". Unfortunately, the other half aren't as lucky, but they can at least thank Dr. Jim and Albo for their help. That should really get Andrew Hauser's gurus, charlatans, geniuses, and buffoons on their soapboxes. News & Insights New Funds on FundMonitors.com Quarterly State of Trend report - Q2 2024 | East Coast Capital Management Investment Perspectives: Thinking about (REIT) timing | Quay Global Investors July 2024 Performance News 4D Global Infrastructure Fund (Unhedged) Bennelong Emerging Companies Fund |
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