GDP, inflation, China PMI

It’s a little hard to get excited about the backwards-looking-quarterly-in-arrears GDP data when you are sure that rates will, at some point, swamp everything.

But still.

Your eyes will detect the gradual slowing of slots of stuff, below, YoY.

Which looks even starker on the QoQ basis, with real GDP slowing to a fraction under 0.5% quarter on quarter.

That’s a marked slowdown. And we know that the RBA is absolutely prioritising the inflation side of the dual mandate.

From a “contribution to growth” angle, importing less, was doing most of the contributing. Gross fixed capital formation not looking especially robust.

It was (as the day unfolded) a slightly unusual mix of market responses to the CPI and GDP data, with a dash of China optimism (PMI data out at 11.30am also) thrown in, I suppose.

Global growth up (as China PMI was strong), local conditions permitted to ease (given miss on GDP, peak inflation), perhaps a combination of the three, in the mind of the market.

Overall, we expect an ongoing deterioration in economic activity. That’s why we are a) underweight Australian shares at the DAA level, and b) within our direct equities, quite defensively positioned, running a beta of 0.8x, and our recent purchases are all of a fairly defensive nature (SHL, RHC, ORA, ASX).

If the Australian economy turns out to be fine, we’ll do (also) fine in absolute terms, with the lower risk, lower returning stocks we do have, but will likely be modestly “left behind”, relative to benchmark.

Mind you, if things turn out fine locally, the odds are reasonable that the same forces driving those happy outcomes in Australia will have also turned out constructively for the world at large, and so our overweight’s to international equities will have also likely done well.

Should things get specifically wobbly for Australia, given high household debt levels, a hawkish RBA, and the above evidence that we are already slowing down, well then our relative positioning should do very well, compared to benchmark.

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