The RBA is on hold, unsurprising given US banking volatility and Credit Suisse going under earlier last month. The monthly inflation data is moving in a manner consistent with an inflation peak that has now been passed.
In the accompanying statement, the RBA emphasised financial stability, citing that long and variable lags mean the prior ten hikes will continue to impact the economy, meaning now is a good time to pause and see how the data evolves.
The market, unsurprisingly, likes it; ASX is up, longer duration REITs are up, AUD is down, and 10 year yields are modestly lower post the 2.30 pm announcement.
It is, to our mind, very clear that the Australian economy will slow and slow sharply, and consequently being underweight Aussie shares in general (preferring international) makes sense. Within the asset class, owning good quality defensives (staples, telecoms, healthcare, insurance and utilities) makes further sense.
Note that the very highest quality stocks continue to trade at ludicrous levels in terms of valuation (such as COH, RMD, SEK, REA, DHG, and XRO). So we shy away from those, targeting the “next level down” to get a better balance of quality, growth, and value.
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