Archives: Reports
The RBA surprised the vast majority of market participants at 2.30 pm yesterday as they hiked the Official Cash rate from 3.6% to 3.85%, a brutal outcome for homeowners languishing under the mounting pressures of rising mortgage repayments. Our preferred scenario was they would hold at 3.6% until Christmas, that opinion went up in smoke after just one pause in May. The decision by Philip Lowe et al could prove the correct move but it was extremely confusing considering the guidance in the lead-up to Tuesday – they paused in May to watch and consider future economic data, the CPI print came in better than expected and they hike, on this occasion, it’s not surprising that most people called it wrong.
A fairly subdued morning before RBA Governor Dr Philip Lowe stepped up to the plate and surprisingly raised interest rates when the vast majority thought they would remain on hold. That sent the AUD sharply higher, bond (prices) & equities sharply lower which materially pushed up yields.
The Australian Banking Sector has noticeably outperformed its US peers courtesy of the strength of the “Big Four” – the press so often likes to knock our banks but they’ve definitely helped most Australians super over the last few years. The sector is trading on an inexpensive valuation relative to its long-term average but most analysts believe the banks will be close to peak profit for their 1H23 results. At MM we are expecting strong results overall, driven mainly by timing differences on interest rate increases and NIM (net interest margin) tailwinds. Conversely, headwinds we must be aware of are higher funding costs, strong competition for deposits and loans, worse-than-expected bad debts, and ongoing tightening of bank regulation.
A positive start to the week and month for the ASX, though the local index finished a long way from early session highs today as investors position themselves ahead of the RBA rate decision due out tomorrow morning. Tech was the main laggard which was particularly disappointing given the strength seen in the Nasdaq in recent sessions. The Materials sector was also lacklustre, struggling for direction with most Asian markets closed for Golden Week.
The RBA meets on Tuesday with financial markets expecting a 2nd-second consecutive pause following last month’s encouraging inflation data tipped the scales in favour of no change i.e. rates will remain at 3.6%. Even with inflation falling there is an outside chance of another hike but in our opinion, such a move would make no sense as signs are already emerging that the RBA may be winning the inflation battle i.e. after no hike in March why would they raise rates in April when the data on the whole has gone in the right direction?
The ASX200 slipped -0.3% over the shortened Anzac week where yet again the main action was to be found beneath the market’s hood, a bad 4-days for the iron ore miners dominated proceedings combined with further worries around regional banks and another failed takeover as TPG walked away from its $1.8bn bid for funerals business InvoCare (IVC) was enough to send the index slightly lower. On the bright side, we saw further M&A activity with Kirin bidding for Blackmores (BKL), a couple of positive surprises on the earnings front catching overconfident shorts plus a resurgence across many building & property nam
A solid end to a positive month for the ASX with 60% of the market finishing higher, although there were some fireworks happening under the hood with Megaport (MP1) up ~40% on better guidance. For the month, the ASX 200 put on +1.83% and it was the sectors that benefit from lower interest rates that saw the best of it, namely Property & IT while the Material’s were the only group to end April in the red.
We are switching from IGO to PLS in the Flagship Growth Portfolio
Post-COVID M&A activity has been extremely strong even as bond yields rallied and the US/Europe suffered a minor “Banking Crisis” courtesy of tumbling bond prices and awful risk management. Private equity was reported to be holding ~$US2 trillion at the start of 2023 and whatever the actual number is when we combine this with large cash reserves in the hands of Australian super funds plus cashed-up fund managers there remains a huge undercurrent of support for stocks.
The ASX fell again today, now down 5 consecutive sessions with Banks & Healthcare stocks contributing most of the pain at the index level. Concern stemming from the US financial system is headlining the media, however, in MM’s view, it has simply been a case of a tired market approaching a seasonally weak period and it made sense to take some cream off the top after a solid run for stocks.
