Australian Cash and Fixed Interest

Short term rates have risen further with another 0.25% rise in December. We have seen the 90 Bank bill rate now hit 3.1% up from virtually zero at the start of the year. 10 Year yields have slipped a little bit but still currently at 3.4% up from 1.7% at the start of the year. 

Moving forward it is important to remember that the RBA doesn’t meet for January, however Phil Lowe in his latest statement stated “expects to increase interest rates further over the period ahead, but it is not on a pre-set course”. ANZ and Westpac are banking on a cash rate of 3.85% by mid-2023, up from our current 3.1%.

We expect the Aussie dollar to continue to grow against the US with the forecast tipping $0.72 by the end of 2023, which is quite a move from our current 67.5cents (not to mention we were at 62cents in October). Disparity in interest rates here and aboard may change the result of this expectation though.

Australian & International Property

A-REITs have proved to be an issue compared to the broader market will them still sitting 18.9% down for the year (after income), compare that to the ASX200 which is now only 1.1% down (after income).

Australia’s property has proved resilient compared to our overseas counterparts, however that just means a less negative number in that sense.

The Commercial property survey showed that confidence was growing in the sector again, however it is still lower than historical averages. The boom we felt in industrial sector as businesses looked for larger warehousing to hold stock due to poor global logistics has started to cool, and office space rents are still looking fairly pessimistic. 

This coupled with the raising interest rates means that we possibly are not going to see a strong rebound in the REIT sector for 2023, and possibly could see further capital reductions if we see the RBA raise rates over expectation.

Australian Equities

 As mentioned, the ASX 200 is now only down 1.1% for the year (3.2% down in cap value), the stand-out has been the mining sector up by 9.2%, with Whitehaven coal doing alot of that lifting. IT is still the biggest detractor at 31.8% down year to date and the consumer discretionary is down 18.1% (however alot of them came of large highs).

The NAB business survey is showing that we still have a fairly robust economy with trading, hiring and profits continuing to hold well. However it looks like November has posted Australia’s first fall in levels of the manufacturing and services index, which means that we might be heading into a downturn a bit sooner than expected.

Economists are expecting GDP to hit 1.3% in 2023 (important to note they don’t expect negative!) and followed by 3.8% in 2024. This is based on employment staying quite low, but it is expected to normalise around the 4% mark (currently 3.4%).

Research provided by Morningstar on December 16, 2022.