Latest / ausbiz a.m / 05.10.26 David Lane, Focus Partners
Transcript
- Andrew: Good morning and welcome to your morning wrap from Osbers. It is Monday, October 5th, and we are expecting a positive start to the week. AZ futures up around three tenths of a percent. Volumes likely to be lighter today, with half the country on a Monday holiday. In a moment, we'll preview the day ahead with David Lane. First, though, look at global markets. ⁓ Wall Street had a strong session on Friday as a weaker than expected US jobs report eased investor fears. Aggressive interest rate hikes by the Fed, the SP up around three-quarters of percent, the Nasdaq 1.2% higher, the Dow up half a percent. tech stocks leading the way there, Nvidia, Broadcom, Tesla, all doing very well. Those non-farm payrolls grew by 29,000 jobs in September. That was ⁓ dramatic miss on forecasts of 84,000, the unemployment rate ticking up to 4.2%. Among the commodities, Crude benchmarks hovered near multi-week lows after a coordinated G7 agreement to release 100 million barrels of emergency reserves. Over the next four months, Sprint crude around 102 a barrel, gold is to 4,140 an ounce, Bitcoin trading around 85,500 US dollars, and the Aussie has fallen to 69.5 US cents. Well, let's get across those market moves. What's ahead this week? David Lane joining us from Focus Partners Australia. David, good morning. David Lane: Morning Andrew. Andrew: And well, good on you for ⁓ joining us on your holiday here in Queensland, New South Wales, ACT, I think the other other jurisdictions on holiday. Nonetheless, the market keeps moving. Let's start with what we saw on Friday, those non farm payrolls. What is that telling you at the moment? ⁓ perhaps a potential cooling of the US economy? David Lane: Ha ha ha. Yes, it's an interesting ⁓ stat, Andrew, because we've obviously been focused so much on interest rates and inflation for some time and it it although inflation is still there, it does indicate that the employment market is cooling a little bit in ⁓ in the US. ⁓ that an unemployment rate up to four point two percent. And you know, maybe takes a little bit of heat out of that ⁓ that bond market play that we've been seeing over hanging markets for quite some time. So Although I think many analysts are still anticipating a a further rate rise by the Federal Reserve later this year, ⁓ the odds are probably less than ⁓ than what we saw last week. And you know, potentially they're not suggesting as as aggressive rate rises as we once thought. So, yeah, we may well be coming towards the end of that ⁓ bond related trade and ⁓ we could well see a little bit of cooling off and and bit of softening of ⁓ those bond yields in the in the short to medium term. Andrew: Well let's ⁓ let's focus on the Australian economy and market. Now, I mean clearly ⁓ interest rates remain front and centres for ⁓ for investors here what what comes next. ⁓ but I see you sort of pointing out potentially the Australian economy is proving to be more resilient than expected. David Lane: Yes, it is. It's certainly ⁓ you know, obviously we keep hearing about the cost of living and and the fact that ⁓ not only interest rates but also the the rising energy costs are are hurting people. But ⁓ yeah, we're still seeing pretty resilient household consumption. GDP is still two point one percent for the year. And you know, we've seen ⁓ again a little bit of a softening of ⁓ some of the discretionary spending, but across the year we've still seen very solid spending from the the consumer sector. ⁓ and yeah, obviously we need to understand that there are many in the economy that aren't mortgage holders and ⁓ the interest rate rises are benef you know benefiting them. And ⁓ yeah we're still seeing you know reasonably solid consumer activity even though the the housing cycle is ⁓ starting to come off the off the peak. Andrew: So w what's your outlook, David, then for Aussie equities, particularly I guess given ⁓ the the higher rate ⁓ environment that we're seeing at the moment? David Lane: Look, I think we've got to live with the fact that we are in a higher rate environment and I think that ⁓ yeah, we've got high rates here for some time. There's some speculation that we've maybe seen the the top of the the RBA cycle. Some are saying that we'll potentially see some more rate rises. Obviously the the RBA's keen to get the ⁓ inflation down below that ⁓ or below three percent, ⁓ ideally around two and a half percent. We're we're not there yet. ⁓ but I think, you know, what we're seeing is a bit of a shift in terms of investor activity, that investors are actually looking more for ⁓ yield, ⁓ whether it's from their their stocks or whether it's from their ⁓ fixed interest portfolio. And I think in a in a higher rate environment that's meaning you know, some people are a little bit more ⁓ interested in in looking at at getting a a you know more defensive type of investment. And obviously we've seen those changes in ⁓ the C G T as well. So it does mean that people are a little bit less less keen to be chasing those gains and and more interested in the the yield that's on offer at in the market at the moment. Andrew: Yeah, so I mean you you're essentially then you're saying it's th the return of the fixed income as as a viable investment option at this point. David Lane: Yeah, absolutely. And and then obviously, ⁓ yeah, we've got a a lot of stocks that are are paying decent dividends. We've had ⁓ a lot of dividends paid out over the last couple of months following reporting season. And reporting season in general was quite good for dividends. So, yeah, there's still a lot of income to be gained from equity investment. ⁓ so I think that you know leans into the fact that we've seen the Australian market ⁓ you know, not as volatile. over the last month or so in that, you know, people are probably a little bit more or le trading less in their portfolios because they're they're holding on for those dividends. Andrew: See you also point out that perhaps you need to be cautious about allowing those central bank decisions, geopolitics and the short term market moves to influence your longer term outcomes. David Lane: Yeah, absolutely. I mean we all get caught up in the the ⁓ the news of the day and and what the central banks might be doing and what ⁓ Michelle Bullock might be saying. ⁓ but they're making their decisions on on long term outlooks and and what they see as far as the the economic impact of of those decisions are. So we as investors also need to be looking at at that as well and not get caught up in the you know, the the overnight moves and you know, really set your your long term portfolio strategy based on your own outcomes and and what you're wanting to ⁓ achieve from your investments. Andrew: So that said, ⁓ how do you position your portfolio into, you know, as we head in towards Christmas given ⁓ all those headwinds we're seeing at the moment? David Lane: Yeah, so we are positioning portfolios a little bit more conservatively. ⁓ as I said, the fixed interest market is becoming more interesting and we're getting ⁓ reasonable yields on on corporate bonds. and even cash, you know, is is yielding quite well. I was looking ⁓ there's a cash accelerator account that's yielding ⁓ about ⁓ four point six percent. That's gonna go up to four point nine percent in an ⁓ on the fifteenth of October. There's a couple of the ⁓ the fixed interest and cash ⁓ income securities that are ⁓ you know yielding very, very well with franking credits. So yeah, we're still conservative as far as that part of the portfolio is concerned. And then in terms of equities, ⁓ yeah, we've been cautious about the valuations of some of the the large cap stocks for some time, ⁓ and still seeing a little bit of value in ⁓ both small caps. and on a global basis and in Australia, as well as in emerging markets, that ⁓ emerging markets are providing a lot more earnings growth than many of the the developed markets and ⁓ yeah still looking reasonable from a a valuation point of view. So yeah, repositioning portfolios a little bit away from those large cap stocks. Andrew: Interesting then you say sort skewing towards small caps. I mean they do tend to struggle in a high interest rate environment, don't they? David Lane: Yeah, that's typically true, yes. ⁓ so you need to be a little bit more selective looking for for those stocks that ⁓ you know are generating stronger earnings that that aren't as ⁓ you know, as affected by the the interest rate environment. ⁓ you know, certainly a a number of the ⁓ the mining stocks ⁓ you know, provide that that growth and the mining sector's been a a very good sector and we think that that will continue for for some time. ⁓ and yeah, many of the small industrial companies are generating very strong earnings growth ⁓ that aren't as ⁓ yeah, aren't as ⁓ impacted by the the interest rate movements. Andrew: Well, David, ⁓ very good of you to give us your view or outlook on the market, particularly on your ⁓ your holiday ⁓ today. I hope you actually have some ⁓ some time to to take out. ⁓ enjoy the day and the week. Thanks so much for joining us from Focus Partners Australia. David Lane: My pleasure. Thanks Andrew. Thanks for having me. Andrew: ⁓ that is your Osbys morning wrap. Hope you have a great day, whether it's a holiday or not, for you. I'm Andrew Gagan. Thanks for listening.