2 October 2023 | Weekly Snapshot

Did you know?

According to the Australian Bureau of Statistics, Australian household wealth is at a record high. Household wealth totaled $15.01 trillion as at June 2023, increasing by 2.1% in the June quarter to $567,632 per person.

Market Movements

Australian Share Market (ASX 200) – down 0.29% with longer term bond yields rising further and yield sensitive sectors like Info Tech (-1.45%) and REITs (-1.17%) leading the declines. The Energy sector (+1.98%) led the gains as oil prices hit the highest levels since August last year. Data last week showed the Australian economy still chugging along despite the rate hikes to date. Seek’s advertised salary index showed wages rose a strong 4.8% for the year in August although the Fair Work Commission’s increase in the minimum wage in July likely played a part. Another budget surplus could be on the cards helped by iron prices remaining well above the government’s assumed price of $60 per tonne and unemployment remaining historically low. And CoreLogic data showed the national preliminary auction clearance rate hit a four-week high of 72% last weekend. The monthly inflation indicator showed Australian headline inflation rate rose 5.2% for the year, up from 4.9% last month. The rise was in line with expectations and the first rise in 4 months. Fuel prices up 9.1% for the month were a big contributor and rents are still rising sharply but other categories showed easing price pressures with underlying inflation moderating from 5.8% to 5.5% for the year. Recent RBA messaging is that inflation is now expected to fall back to target over the forecast horizon without additional rate hikes, but market pricing for a November or December hike have been firming recently on some waning disinflation themes. The ABS released our quarterly Job vacancies data showing an 8.9% decrease to 390,400 vacancies in the three months to August. It was the 5th consecutive quarterly decrease since vacancies peaked at 476,900 in May last year but remain elevated, still 71.5% higher than they were in February 2020 prior to the pandemic. In the September meeting minutes the RBA mentioned the job market is “at a turning point” before the employment data later in month blew away estimates with a 60K monthly gain although the job vacancy data has clearly turned.

U.S. Share Market (S&P 500) – down 0.74% with the Dow (-1.34%) and Nasdaq (+0.06%) mixed with the week also closing out the month and the quarter. For the month of September the Dow was down 3.50%, the S&P 500 down 4.87%, and Nasdaq down 5.81%. It was the biggest monthly decline since December last year and the first back-to-back monthly declines in a year. For the September quarter the Dow was down 2.62%, the S&P 500 down 3.65%, and Nasdaq down 4.12%, the first down quarter since the September quarter last year. Yields rose further with the US 10yr hitting another 16-year high with a notable spike in the MOVE (bond volatility) index last week. Bond market volatility had fallen to around the lowest levels in 18 months recently but the renewed selloff in government bonds has seen bond market volatility picking back up. Economic data was mixed but ok. The Consumer Confidence index was below expectations although the prior month was revised higher and the present situation index rose, while the expectations Index fell sharply. New home sales fell to 5-month low missing expectations while the Richmond Fed manufacturing index beat estimates and moved back into positive territory for the first time in over a year, continuing a recent trend of softer housing data following a strong rebound earlier this year but manufacturing indicators picking back up. Durable goods orders were up 0.2% for the month, beating estimates for a 0.4% contraction although last month was revised lower but durable goods are up 5 of the past 6 months with September quarter GDP growth expectations continuing to be revised higher last week. The oil price traded above $93 per barrel for the first time since August last year last on renewed supply concerns with disinflation themes waning further although the Personal Consumption Expenditure data on Friday night showed Core Inflation up 3.9% for the year, in line with expectations and lowest annual rise since May 2021.

Portfolio Movements

Amazon’s (AMZN) AWS announces new offerings to accelerate generative AI innovation. Amazon Web Services announced five generative artificial intelligence (AI) innovations late last week, so organizations of all sizes can build new generative AI applications, enhance employee productivity, and transform their businesses. The announcements includes the general availability of Amazon Bedrock, a fully managed service that makes foundation models (FMs) from leading AI companies available through a single application programming interface (API). To give customers an even greater choice of FMs, AWS also announced that Amazon Titan Embeddings model is generally available as a new model on Amazon Bedrock. AWS also announced a new capability for organizations that want to maximize the value their developers derive from generative AI. And to increase the productivity of business analysts, AWS is releasing a preview of Generative Business Intelligence (BI) authoring capabilities for Amazon QuickSight, a unified BI service built for the cloud.

The Australian Prudential Regulation Authority (APRA) put out a media release last week seeking feedback on improving the effectiveness of Additional Tier 1 capital (hybrids) in a potential bank stress scenario, likely on the back of the Credit Suisse hybrid write-off in Europe earlier this year. They are considering 3 potential options to make AT1 capital more effective in absorbing losses including changing the design features to ensure AT1 capital absorbs losses earlier in a stressed scenario, making changes to the level or mix of regulatory capital requirements to reduce the reliance on AT1 capital, and / or shifting the AT1 investor base away from domestic retail investors. The release noted “The Australian market for AT1 is also unusual by global standards, with more than half the bonds held by small retail investors” They also noted “Australia’s banking system is one of the strongest and most resilient in the world, but we need to stay alert to potential risks to that stability.” And that after considering feedback will formally consult on any proposed changes to prudential standards or guidance next year.

India Avenue Equity Fund capturing strong returns. The India Avenue Equity Fund provides exposure to India equities as part of our emerging markets allocation in our international equities portfolio. Their latest report shows them having another good year with a 23.10% p.a. return of over the last 3 years, outperforming their benchmark by 3.38% p.a. Manger comments from the report included “Over the last month we have started reducing our exposure to mid and small caps, given the outperformance of these stocks relative to large cap stocks. In our view this is prudent given the significant returns from mid and small caps over the last 4-5 months. From here, we expect rising correlations of sectors and stocks after a period of low correlation, which was conducive for actively managed funds. The 61 stocks we hold in the Fund on 31 August 2023, range from a weighting of 4.6% to 0.3%, indicating a fairly diversified portfolio, with a cautious approach to taking on risk to one specific company or industry. In the longer-term we remain focused on finding companies exposed to growing addressable markets at what we feel are reasonable valuations.”

The Week Ahead

Domestic economic data highlights this week include ANZ Job Ads today, with Building Approvals, Housing Finance, and the RBA interest rates decision tomorrow is the highlight of the week. The RBA is expected to hold again at 4.10% but odds for an end of year rate hike have crept up in recent weeks. New Motor Vehicle Sales are Wednesday with the Balance of Goods and Services on Thursday.

International highlights include Japan Tankan Manufacturing Index today and Eurozone Unemployment Rate tonight along with US Construction Spending and ISM Manufacturing. The US JOLTS Job Openings report is tomorrow night. Eurozone PPI and Retail Sales are Wednesday night along with US ADP Private Employment, Factory Orders, and ISM Services. French Industrial Production and German Construction PMI are Thursday night. Japan Household Income is Friday with German Manufacturing Orders Friday night along with the US Nonfarm Payrolls report which is the high light of the week. Expectations are currently for another 155K jobs to be added and the Unemployment Rate to fall back to 3.7% from 3.8% last month.

None of our portfolio companies are reporting this week.