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Printed: 29 May 2024 7:07 AM


10 May 2024 - Hedge Clippings | 10 May 2024



Hedge Clippings | 10 May 2024

As widely expected the RBA kept rates on hold following this week's board meeting, surprising no one, except possibly those brave souls predicting either a rate cut, or even a couple expecting a rise. The bottom line is inflation at 3.6% is only slowly moving - at least not in the direction the RBA would like it to, and certainly not fast enough. Adding to their concerns underlying inflation is higher than the headline number and declining even more slowly, and services inflation is even more stubborn.

So if no rate cut now, when?  Based on all the numbers - and it'll be the numbers that count - not for some time yet, with the RBA's statement that the outlook remains highly uncertain hitting the nail on the head. Their current expectation is for inflation to return to the preferred 2-3% range in the second half of 2025, and the middle of that range - i.e. 2.5% - sometime in 2026. Between now and then there's a whole raft of uncertainty, and we would expect the RBA to be more inclined to raise rates if the numbers look bad, than to drop them on the back of one good month, or quarter.

With Australian interest rates close to 1% lower than the UK (5.25%), lower than most of Europe - range 1.5% (Switzerland) to 50% (Turkey) and 1% lower than the US, like almost everyone else, we would expect any downward movement to be relatively slow.

Meanwhile next Tuesday's budget is unlikely to help, neither will the release of April's Wage Price Index numbers the next day, and looking further out neither will tax cuts due in July. Unemployment is still (just) sub 4%, and while there are certainly pockets of the workforce and economy doing it tough, the fact of the matter is that the best news on the inflation front will be an unemployment rate closer to 5% - or more.  If that were to occur, then instead of inflation being stronger, and rates being higher for longer, we'd all be talking about the R word. It's too early to start that conversation, but harking back to the RBA's release on Tuesday, they noted that household consumption has been particularly weak, and discretionary spending subdued.

Whatever the numbers, predictably as ever, the RBA re-enforced their dual mandates - price stability (in other words inflation) and full employment, with returning inflation to target being the priority.

Turning to fund performances, and with almost 70% of April results in to date, for the first time this year there were widespread negative returns across nearly all peer groups, with the exception of Alternatives, Debt, Private Credit, and Asian Equities. That still leaves all peer groups in positive territory over 1, 3, and 5 years, with only the Property sector struggling over successive years. Property is of course notoriously sensitive to interest rates, so we were fortunate earlier this week to catch up with Winston Sammut from Euree Asset Management's A-REIT Securities Fund to discuss both the RBA's decision, the outlook for inflation, and the varied nature and sectors that make up the overall property market. While Winston is a veteran of the sector, his Euree A-REIT Fund is relatively new, launched last August. In spite of that, the Fund is topping the Property Peer Group over the last 6 months with a return of almost 27%.

You can watch the interview below (recorded with the assistance of, and in the studios of Finance News Network) and see the Fund's Profile here.

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