The CPI data is out.
The short form summary: the rate hikes are going to continue.
Headline, quarter on quarter, trimmed, weighted, all above consensus, and slightly above prior.
The financials, as a sector, are broadly decent inflation hedges, specifically because banks can reprice through variable mortgage rates, and insurance companies, because they benefit from the higher returns to float, as well as the higher premiums, whilst having an asset-liability match that prevents changes in rates from leaving them ill-positioned.
At the DAA level, we are underweight Australian shares, maintaining a preference for international. Partly this is because higher inflation means higher rates means higher mortgages means greater risk for Australia’s highly geared residential property sector.
That’s not a trade that’s worked especially well (putting it mildly, as Australia has been one of the best performing markets thanks to commodities) but it is a position we will stick with.
Overall, the market did not like the CPI release. FX, yields up, duration equities and risk in general, down.
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