Our DPW portfolios continued their strong positive performance in July, led by some solid stock picking, with the Australian Equities ‘sleeve’ generating 0.5% added relative performance in July. The Australian Equities sleeve has outperformed the ASX 200 benchmark by 8.3% for the calendar year to date.
Markets endured a rocky July. The S&P/ASX 200 ended the month at 8,092 points, up 4.2%, driven by strong returns in the Financials sector. Commonwealth Bank (CBA) was a stand-out, up 8% for the month, and now comprising nearly 10% of the total market capitalisation of the ASX 200.
In the US, the S&P 500 closed the month at 5,522 points, up 1.1%. The S&P 500 spent much of the month in negative territory before being lifted into green territory by a 1.6% increase on the last day of the month, driven by dovish rhetoric from Federal Reserve Chairman Jay Powell on the possibility of a September rate cut. Many of the more popular trades that have driven the market to record highs during 2024 (e.g. Semi-conductors and the Yen carry trade), retreated marginally in the face of slightly worsening macroeconomic data.
In Australia, early-month macroeconomic data highlighted the economy’s robustness, despite record high borrowing costs. May’s retail sales grew by 0.6% month-on-month, surpassing analyst estimates of 0.2%, while June’s employment data showed an addition of 50,000 jobs, well above the 20,000 forecast.
In the Q2 2024 CPI data, released on 31 July, the RBA Trimmed Mean CPI rose by 0.8% for the quarter, which was 0.2% below analyst expectations. In light of the stronger-than-expected spending and employment growth, coupled with the lower-than-expected inflation, the 2-year Australian Government Bond yield fell from 4.2% to 3.9% during the month, as market expectations for further monetary policy tightening diminished.
In international markets, the Bank of Japan raised interest rates to 0.25%, the highest rate since the 2008 financial crisis. Off the back of increased rates, a popular global trade called the carry trade where investors borrow in low-interest rate currencies like the Japanese Yen and invest in higher interest rate currencies began to unwind. This unwinding sent waves across the global currency markets causing many to fall against the Yen, including the Australian Dollar which peaked at 109 Yen per Dollar mid-month before falling 10% to 98 Yen per dollar.
In the US, June’s CPI and Personal Consumption Expenditure (PCE) data showed a continued easing in price growth, with the CPI print indicating that the US had unexpectedly fallen into deflation during June. The Core PCE Price index advanced by 0.1% month-on-month and 2.6% year-on-year, continuing the slow downward trend towards the Fed’s 2% target. The lower-than-expected CPI number ignited a rotation into smaller companies, with the Russell 2000 Index rallying 10% between in mid-July.
While labour markets appear to have weakened slightly, the outlook for global growth remains relatively robust. In the US, Donald Trump appears to be tying or leading in all recent polls against Kamala Harris. Regardless of who wins office in November, we view the current spending and post-election policies proposed by both political candidates as inflationary. More specifically, Trump’s purported policy agenda of mass deportation and high tariffs on imported goods used to fund tax cuts could further upset supply and demand dynamics in the US and reignite inflation.
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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