DPW portfolios continued their strong performance over August, led by some solid stock picking, with the Australian Equities sleeve generating 0.3% alpha, the sleeve has outperformed its benchmark by 8.6% for the calendar year. All portfolios delivered positive outcomes.
Markets traded sideways for August. The S&P/ASX 200 ended the month at 8091, down -0.01%, with a significant dispersion in performance across sectors as growth fears began to take hold. Financials and REITS did well whilst Energy and Metals and Mining sold off on the back of fears of a global slowdown in economic activity and continued iron ore weakness. By contrast, in the US, the S&P 500 had a strong month closing at 5648, up 2.3%, as a broader risk-on sentiment took hold following the unwind of the JPY carry trade and increasingly dovish rhetoric from Federal Reserve Chairman Jay Powell.
In Australia, macroeconomic data continues to suggest that inflation is still entrenched. CPI data released for July which detailed the Annual Trimmed mean indicator, the RBA’s preferred measure of inflation, showed that prices increased by 3.8% year-on-year – still significantly above the RBA’s target 2-3% band. The services component of CPI, such as Insurance (+6.4%), Education (+5.6%) and Housing (+4%), all remain stubbornly high. Employment data releases which showed strong wage growth (+4.1% Year on Year) and a tight labour market (with jobs added (+58.2k Month on Month), participation rate (67%) and unemployment (4.2%)) were also strongly suggestive of an inflationary environment. In light of weakening GDP growth, the RBA has a difficult decision ahead of it on rates come 24th September. Despite this, the Bloomberg AusBond Composite 0+ year index increased by 0.70% during the month.
In international markets, global Purchasing Managers Index (PMI) data presented a varied landscape across key sectors. Notably, the global manufacturing PMI dipped just under the pivotal 50-point mark, marking the first contraction-expansion threshold breach this year, driven by a reduction in new orders. Conversely, the service sector PMIs largely held steady, demonstrating resilience in most global markets. Despite a slight dip, the global composite output index for July indicated continued, albeit moderate, global economic expansion.
In the US, July’s CPI and Personal Consumption Expenditure (PCE) data showed the US currently experiencing disinflation.
The PCE index advanced by 0.2% Month on Month, 2.5% Year on Year, whilst the CPI number advanced 0.2% Month on Month with the goods component currently in deflation, driven by a fall in commodity prices. This is suggestive of a muted inflationary environment, and this was further supported by Fed Chair Powell’s comments that “the time has come” to cut rates, amid signs of a weakening US labour market (with unemployment ticking up to 4.3%). Based on these comments made by the Powell, longer dated US yields fell sharply across all tenors, with the 2–10-year tenors now all sitting below 4%.
The challenging and ever shifting macro environment requires nimble and active portfolio management and a strong focus on risk.
Regards,
Greg Davis
Director
Greg Davis Authorised Representative 1245528 and Davis Private Wealth Pty Ltd Corporate Authorised Representative 1299449 are authorised representatives of Sentry Advice Pty Ltd (ABN 77 103 642 888, AFSL 227748.
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