In 2020 the government of Austria issued 100-year bonds at a 0.85% coupon that was considered attractive at the time. The price of those bonds has since fallen from the €100 issue price to below €33 last week.
Australian Share Market (ASX 200) – down 1.34% for the 3rd week in a row with global bond yields rising further to start the new month and quarter. All sectors were lower with Energy (-6.60%) leading the declines followed by Consumer Discretionary (-1.97%) and Industrials (-1.89%). The RBA left the cash rate unchanged at 4.10% as expected. The statement was largely unchanged saying some further tightening may be required but the recent data is consistent with inflation returning to target over the forecast horizon (by late 2025), with uncertainties around the strong labour market, economic outlook from weak household spending, sticky services inflation, lagged effect of rate hikes, and China growth headwinds also mentioned. Market pricing has now moved to a ~90% probability of further tightening by April 2024 with the AUD falling to an 11-month low on the “hold” decision and further USD strength. Our Q3 CPI print later this month will be key with data last week showing rents and energy bills still rising sharply. Domain Group data showed the national vacancy rate dropped to a record low of 0.8% in Q3 as the rental crisis worsens. Data from PropTrack showed Capital city unit rents rose 4.8% in Q3, up 19.6% for the year. Housing rents climbed a more modest 0.9% in Q3, but a still high 10.6% for the year. The Australian Energy Regulator also showed electricity bills have soared up to 20% over the past year. But also noted average wholesale electricity prices were currently down on this time a year ago due to a mild winter and improved generation availability. CoreLogic’s National Home Value index (NHVI) rose another 0.8% for the month in September with the NHVI up 6.6% since the trough in January, however home values remain 1.3% below the record high in April last year. China was closed for Golden Week, but the PMI data showed a welcome improvement. The manufacturing PMI was 50.2 in September, the first expansion since March. Non-manufacturing also improved with the Composite PMI the highest in three months.
U.S. Share Market (S&P 500) – up 0.48% with the Dow (-0.30%) and Nasdaq (+1.60%) mixed with US economic data better than expected and the 10yr treasury yield making a new 16 year high. Yields on 30-year Treasuries also rose above 5% last week for the first time since 2007 (yields move inversely to prices) with Bank of America noting the selloff in long term government bonds is causing the “greatest bond bear market of all time”. The report showed the current decline in value of 30-year bonds from the peak in July 2020 to now far outpaces that of any previous bond bear markets. The next worst period was from 1860-1861. Not all Treasuries have fared the same, but it has been an historically weak period for government bonds the past few years. The Akambo multi asset portfolios have maintained very little exposure to government bonds during this period. The September ISM manufacturing came in at 49, ahead of estimates and up from 47.6 last month. Still in contraction for the 11th consecutive month but continuing the recent theme improving manufacturing indicators. Construction spending rose again in August, the 8th straight month of increased spending. The September ISM services index printed at 53.6, in line with expectations and still chugging along with the services sector making up around two thirds of the US economy. The August JOLTS job openings report showed job vacancies unexpectedly rising to 9.6M, well ahead of estimates. Job openings fell to 8.9M last month, the lowest since March 2021 and were expected to hold at that level but bounced back on strong increases in professional/business services, finance/insurance, and education related openings. Nonfarm payrolls of 336K on Friday night were the strongest since January, more than double the 163K expected with the prior two months also revised up. The Unemployment rate was unchanged at 3.8%, vs. expectations for a fall back to 3.7%. Markets couldn’t work out initially if this was good or bad news. Bond yields surged to new highs and equities fell on the report, before yields pulled back somewhat and the S&P 500 closed the week higher.
Commonwealth Bank of Australia (CBA) mortgage book falls for 2 months in a row – first time in 20 years. Official data from APRA last week showed CBA’s home loan lending to owner occupiers, the most highly contested part of the market, had fallen to $363 billion at the end of August, down from $364 billion in July, and down on the $366 billion in June, the first time in 20 years that CBA’s mortgage portfolio has shrunk over back-to-back months. It looks like CBA has been particularly prudent during this period of rising rates, and the risks that come with it for lenders, and have not been participating in the mortgage price wars to the same extent as others. CBA was the first major bank to remove its up-front cash incentives back in February when the CEO said he thought home loan pricing across the industry was below the cost of capital.
CME Group (CME) reports strong Q3 Average Daily Volumes. CME Group, formerly the Chicago Mutual Exchange, is the world’s leading derivatives marketplace. Their products and services enable clients to trade futures, options, cash, and OTC markets, optimize portfolios, and analyse data. CME reported its September and Q3 2023 market statistics last week, reaching an average daily volume (ADV) of 22.7 million contracts in September, representing the company’s second-highest September ADV on record. Q3 ADV was 22.3 million contracts, the second highest Q3 volume ever. Many large market participants use CME to hedge out risk with the company a beneficiary of increasing bond and equity market volatility.
Treasury Wine Estates’ (TWE) predictive artificial intelligence and self-driving vehicles investments paying off. TWE is one of the world’s largest wine companies, listed on the ASX. Brands include Penfolds, Wolf Blass, Linderman’s, Pepperjack, Wynns, Seppelt, and Beringer to name a few. Since 2020 TWE has been increasing its use of autonomous vehicles, AI and sensors to improve grape yields and reduce water consumption in its vineyards. Their sustainability report last week said they saved water and mitigated the impacts of unpredictable weather and extreme events with investments in automated irrigation, predictive analytics and sensors now paying off. “We continued to focus on using technology to progress digital platforms and management of big data to deliver improved forecasting of vineyard production and changing weather patterns to protect our crops and improve overall operational efficiencies,” the report said.
The Week Ahead
Domestic economic data highlights this week include Westpac Consumer Confidence and NAB Business Confidence /Conditions tomorrow with Consumer Inflation Expectations on Thursday.
International highlights include China Loan Growth today, with German Industrial Production and Eurozone Sentix Economic Index tonight. US NFIB Small Business index and Wholesale Inventories are tomorrow night. US PPI is Wednesday night along with the September FOMC meeting minutes. UK Industrial Production is Thursday night along with US CPI which is a highlight with CPI expected to have increased 3.6% for the year, down from 3.7% last month. China Trade Balance, CPI and PPI is Friday with Eurozone Industrial production Friday night along with US Import / Export Price Index and the University of Michigan Consumer Sentiment Survey.
Portfolio company reporting this week includes annual general Meetings for CBA, IAG and CSL on Wednesday. The Q3 earnings season gets underway in the US later this week.
Saward Dawson Wealth Advisors Pty Ltd, a Corporate Authorised Representative of Akambo Pty Ltd t/a Accountants Private Advice
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