What Investors Want To Know - 06.09.23

6 September 2023

Official Cash Rate: At 2:30 pm yesterday, on the last meeting of the Reserve Bank with Governor Lowe at the helm, the Reserve Bank of Australia announced to hold the Official Cash Rate of 4.10%.

Big News on Equities Portfolios: Wall Street had a volatile August, ending the month, pretty well back where it started, after a five-month winning streak.   This followed the Nasdaq Composite, which was equally volatile, falling 5.20%. The Dow Jones Industrial Average declined 3.00% in August.   These pullbacks are a contrast to the market rally seen earlier this year. The Nasdaq Composite had its best first-half performance in 40 years in 2023. The S&P 500′s gains over the first six months of the year marked the index’s best start to a year in two years.   There are several things pressuring Wall Street now, ranging from seasonal factors to concerns about the global economy and the Federal Reserve   The Australian market did the only logical thing and followed the US, although, by the close of August, the ASX 200 hadn’t fallen quite as hard, shedding 66.90 points or 0.90% to 7,115.2 points.

Big News on Inflation: Australia's inflation slowed to a 17-month low in July, driven by falls in holiday travel and fuel prices, while the measure of core inflation also cooled, a signal that interest rates might not need to rise again.   As a result, markets moved to price in a 99.50% probability that the Reserve Bank of Australia would pause its rate hikes for a third straight month in September, given inflation is easing as desired.   Analysts also pared back the chance of one last hike by the end of the calendar year to just 35.00%, signalling that the RBA is now largely at the end of the tightening cycle.   Data from the Australian Bureau of Statistics on Wednesday showed its monthly Consumer Price Index (CPI) rose 4.90% in the year to July, down from 5.40% the previous month and under the market forecast of 5.20%.   In an encouraging sign, CPI rose by 0.30% in July, on a monthly basis, taking the three-month annualised rate to 2.80%, back in the RBA's target band of 2-3.00%.   Electricity prices rose 6.00% in July from June. Michelle Marquardt, ABS head of price statistics, said electricity prices could surge 19.20% on the month were it not for government rebates.   Rent inflation accelerated to 7.60% in July, from 7.30%, suggesting services inflation could be sticky. The housing shortage is a contributor to the increase in rental costs.   The persistent increase in Official Cash Rates by the Reserve Bank, a total of 12 consecutive rate hikes since May last year, has seen the RBA jack up rates by a whopping 400 basis points to an 11-year high of 4.10%,   Incoming Governor Michele Bullock warned on Tuesday that rates may need to rise again, and policymakers would be watching data very carefully.

Big News for House Prices: CoreLogic’s national Home Value Index (HVI) marked a sixth consecutive monthly rise, up 0.80% in August.   The monthly gain was a slight acceleration from the 0.70% increase in July, interrupting a two-month trend of slowing capital gains.  Since bottoming out in February, the national HVI is up 4.90%, adding approximately $34,301 to the median dwelling value.   The recovery trend remains broad-based, with every capital city except Hobart (-0.10%) recording a rise in dwelling values over the month. Gains were led by a 1.50% increase across Brisbane, followed by Sydney and Adelaide where home values were up 1.10%.   CoreLogic Research Director, Tim Lawless, noted the trend in housing values, although generally positive, is diverse.   Sydney has led the recovery trend in residential property to date, with a gain of 8.80% since values found a floor in January this year.  Brisbane has also posted a strong recovery with values up 6.20% since bottoming out in February.   At the other end of the scale, some other capital cities are better described as flat, with Hobart home values unchanged since stabilising in April, while values across the ACT have risen mildly, up 1.00% since a trough in April.  These are also the only two capital cities where advertised supply is tracking higher than a year ago, suggesting a rebalancing between buyers and sellers is a key factor contributing to the stability of values in these regions.”

To the share markets: Locumsgroup’s tailored investment portfolios are structured to suit each of our clients’ unique risk profiles; this is achieved using Nobel Prize-winning investment technology developed by Professors Fama and French of the Chicago Booth School of Business. Our clients’ portfolios are designed to capture the dimensions of returns generated in the Global Capital Markets. The US markets closed mixed overnight, with S&P 500 up +0.18%, NASDAQ down -0.02%, and Dow Jones up +0.33%.   European markets closed lower overnight, with the Stoxx Europe 600 down -0.08%, the German DAX down -0.10%, and U.K. FTSE 100 down -0.16%. The S&P/ASX 200 closed +0.56% higher yesterday.

To currencies. The Aussie dollar is up +0.02% from US64.58 cents to US64.60 cents, down from a 12-month high of US73.65

To global oil: The Brent crude price is up +0.33% to US$89.00 a barrel, down from a 12-month high of US99.01

To Iron Ore:   The Iron Ore price is currently US$118.19. up from a 12-month low of US97.44 Figure 1: Price Movements Across Key Markets: 3 Year Data Sample                                    

If you have any questions regarding your portfolio, please contact us on: finadviser@locumsgroup.com.au