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.
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.
Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.
This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.
Please note that past performance is not a reliable indicator of future performance.
General Advice Warning: This document has been prepared without taking into account your objectives, financial situation or needs, and therefore you should consider its appropriateness, having regard to your objectives, financial situation and needs. Before making any decision about whether to acquire a financial product, you should obtain and read the relevant Product Disclosure Statement (PDS) or Investor Directed Portfolio Service Guide (IDPS Guide) and consider talking to a financial adviser.
Taxation warning: Any taxation considerations are general and based on present taxation laws and may be subject to change. Aequitas is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and investors should seek tax advice from a registered tax agent or a registered tax (financial) adviser if they intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.