Inflation
The Aus inflation data surprised again to the upside. Broader, and more persistent.
The quarterly data is backward looking, but, is somewhat more meaningful than considering base effects from a year ago. These also show broader, more persistent inflation.
The RBA is experimenting with a new monthly series, which gave some hope, alongside the recent, weaker labour market data (effectively zero net job ads over the past month), that perhaps conditions had peaked, in turn supporting a pivot.
The market doesn’t quite know what to make of today’s data. Bond yields spiked higher, after having fallen quite dramatically over the past few days. The AUD oscillated, and markets, which had been stronger, moderated, although the timing to the CPI print doesn’t perfectly align.
We are attempting to play higher inflation, begetting higher interest rates, domestically, through stocks and sectors that will benefit, such as banks and insurance (noting that the insurance play has run square into the Medibank private hacking scandal, although we also have SUN and QBE in there).
We are avoiding the consumer cyclicals, expecting tighter conditions to eventually weigh.
We’ve been long the non-discretionary consumer stocks (or those with branding power, like TWE, which are also a COVID reopening play) and continue to avoid commodity stocks, fearing that a slowing China will reduce demand, alongside globally tighter policy.
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