- Monetary Policy Decision
The RBA did not roll the yield curve target to November 2024, and did lower the future weekly purchase amount of bonds from $5bn to $4bn per week.
As such, the outcome was slightly more hawkish than the market expected.
We can match our interpretation of events to those of the market. A) the AUD rallied..
B) the 10 year yield rose..
C) and the market fell, with all 3 events occurring at the release of the new news.
That particular mix of macro market co-movement is very consistent with economic theory, specifically associated with monetary tightening. All of this is very much at the margin, and the overall stance of policy remains highly accommodative.
Stockmarkets, of course, are very forward looking, and many of the secular-growth-long-duration stocks sold off hard. For tech companies like PNV, HUB, CUV, WTC, XRO, with relatively modest profits and cashflows today but (prospectively) very large profits and cashflow streams in the future, the effect is an immediate reduction in net present value.
Healthcare stocks sold off for principally the same long-duration reason, and the building materials companies (BlueScope, Reliance, Sims) and consumer discretionary stocks (HVN, JBH) largely because the assumed foreshadowed tighter rate environment lowers the demand for housing, which is the primary sectoral driver of consumer and building materials stocks.
We’ve sold our tech names (ALU, IRE) and also several of our healthcare names (SHL, RMD). We have no consumer discretionary exposure (except for daycare related companies) and as such were comparatively more insulated relative to the market.
Our long run target for the US 10 year continues to be 2.5%, which would be challenging for the valuations of most of the companies in the table above.
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