Latest / ausbiz a.m / 13.08.26 with Michael Carmody, Centennial Asset Management
Transcript
- Andrew: Good morning and welcome to your morning wrap from OSB setting you up for the day on the Australian share market. It is Thursday, August the thirteenth, and we're expecting a mildly negative start on the local market. ASX futures are down around one-fifth of percent. In a moment, we'll preview the day ahead with Michael Carmody. First, though, a quick wrap of where markets finished overnight. The SP and NASDAQ ended higher, lifted by upbeat results from Corweav AI infrastructure firms. And mild inflation data reinforcing bets, the Fed Reserve will hold interest rates steady in September. So US consumer prices barely increased in July. So the SP that was up around quarter percent, the Nasdaq half percent higher than Dow was flat. And the chipmakers gained NVIDIA rising about 3% micron, adding close to 5%. Among the commodities, oil was down slightly to $88 a barrel, gold up 1% to around $4,000. $410 an ounce, and Bitcoin trading just below $63,500 US dollars. The Aussie dollar, a little changed at $70.6. Well, joining us now to get across the market moves is Michael Carmody from Centennial Asset Management. Michael, good morning. Michael Carmody: Morning, Andrew. Andrew: So what did you make of that session? obviously there was the all eyes were on the inflation read as to what the Fed perhaps is going to do next. What did you make of Michael Carmody: Well, I think you're absolutely right. you know, thankfully inflation, you know, is is moving in the right direction and the the annual rate at sort of three point four year on year is still above that Fed target of two. But obviously it it's slowly moving in the right direction towards that target. I suppose the interesting thing from my perspective is is that you know the Fed are due to meet again in September to make a decision on rates. Prior to the overnight print last night, I I think it's fair to say that it was a fifty fifty proposition with respect to what th th the Fed was likely to do. I think the last number I saw was that sixty two percent of surveyed economists now think that the Fed's likely to remain on hold in September, which is good for valuations and good for equities, I suppose. Andrew: Well, of course, that comes after the our own RBA leaving rates on hold. Speculation perhaps we are at the peak of the the hiking cycle. But in the midst of reporting season two, of course, Michael. So interested to get your view. Let's begin with what we saw yesterday, the big one in C BA. We've already heard from Westpac at the beginning of week, and we well know a lot of the banks now banks now flagging that the mortgage market is in some distresses, such if you like, obviously with applications falling quite dramatically. What did you make of the C B A result? Michael Carmody: I think you're absolutely right, Andrew. I mean CBA is a really good window into the broader economy for anyone pricing equities. I mean, I think they've got upward of ten million customers. A a third of Australians use CBA as their mindful you know, their main financial institution. And and interestingly, ninety-seven percent of people that have home loans with or loans with Combank also have transaction accounts. And if you go to the back of the deck yesterday, they delivered a pretty good result, really. and the stock certainly was down a little bit post the result. But I think more importantly, results are about the next 12 months. Not a lot of comment from the management team at Combank about their expectations for next year. I will say that that that that that they certainly have seen, I suppose, a stabilization of the decline. in incoming application demand. But but talking about the outlook, what I think is interesting is that they do point to quite good growth in CapEx investment intentions. That's being delivered in part by sort of data centre demand. But see pressure on productivity, pressure on household spending, wage stability at kind of plus three percent, which is I I suppose you know not not low, and a slowing economy broadly. And to me, investors saw that yesterday and I'm going to use a really technical term. We had a pretty heavy market yesterday. There's a lot of red on the screens and I think investors are struggling to find reasons to gonna buy equities in the middle of, I suppose, this updating period during during August when results for twenty six are coming in. Andrew: now so we do have an A and Z update today as well. w would you expect them to follow suit essentially, particularly given that focus on on mortgages? Michael Carmody: Yeah, I I can't see how th they differ from C BA or Westpac with respect to softness as far as applications are concerned. And remember I think there is a bit of a a buyer strike on. investors are going, Well, I I need to see what the landscape looks like for capital gains tax and to to a lesser extent I suppose you know, rates. And we still don't have that legislation that allows people to with some certainty invest, knowing what taxes they're gonna have to pay as far as capital gains. And hopefully we get some more transparency on that this month, you know, w with what's happening in Canberra in August. Andrew: Michael, we also got a downgrade from Seek, the online jobs platform, and Premier, the retailer. Does that underscore your point, just that softness we're seeing in the economy at the moment overall? Michael Carmody: Yeah, I mean we always say from an investor's perspective, you know, take notice of what's happening as far as rates are concerned, because the economy will follow. And we've had three rate rises this year. That does, as c as the CBA guy said yesterday, you know, put pressure on household spending and consumer confidence. And we saw the premier downgrade yesterday. That did relate in part to their decision to exit Peter Alexander in the UK. But if you look at Seek They they held pricing quite well, but volumes put pressure. The stock was down sort of circa fourteen percent yesterday on that update. It kind of makes sense. It's logical, I suppose. Andrew: Also got the insurers in focus. Suncorp reporting yesterday, we've got IAG today. I don't know about you, Michael, but I look at my premiums across the board for insurance at the moment. It's they're absolute killers. are they making enough money from that? Michael Carmody: Well, they seem to be. if you look at Sun yesterday, just up over just over three percent. you know, th the the this this the cycle as far as rates isn't is an advantage for them. As you say, we've got AI IAG today. I I I can't see why they won't manage the the rates environment similarly with respect to pricing and yield. And so we'd be surprised if there isn't a pretty solid set of numbers coming from IAG today. Given what Sycorp delivered yesterday. Andrew: another big one today, Telstra. That's it's become something of a bit of a boring stock, but you know, it's it's many people obviously have it in in the portfolio. What what what are you expecting there? Michael Carmody: Sometimes boring's okay, Andrew. And the market Andrew: Yeah, true. Michael Carmody: that we had yesterday, boring sort of cuts the mustards as far as I'm concerned. So look, Telstra tightened their guidance for the result in February. obviously they had in the Peruvi's period a very good kind of cash flow results. People will be focused on that. The growth driver for this entity is is how they're competing on mobiles and and that's really gonna be a focus. I'd be surprised if they don't land within the range. But much like sort of the comments I make about Combank, it's it's fiscal it's the next fiscal year that's important and where guidance lands there relative to expectations and what sort of I suppose exposure they have to that softer consumer is going to largely set the tone for what the share price does today. Andrew: Now, aside from reporting at the moment, there's quite a bit of and A activity on the books with well in fact I think what we had fleet partners, that's that's becoming a bit of a a popular target at the moment, isn't it? What's going on there? Michael Carmody: Yeah, I mean obviously we got a a th a third interest in in this MA target. obviously it started with SG Fleet recently, putting a bit on the table for this asset, consolidating the the the the the car leasing business that is the predominant earnings driver as as far as Fleet Partners is concerned. But subsequent to that obviously we've got two other interested parties. the bid price has now moved up and the competition is on. it sort of belies some of the comments we made about confidence. but you know, obviously this is an asset where you know we might get some more interest as well. But if you own this asset here, the the the upward revision as far as price tension is concerned looks pretty obvious. And you know, as you say, there is some corporate activity around for assets that. look inexpensive, for which an acquirer can take some scale and some synergies to the PL pretty quickly and Fleet Partners looks like it's a pretty good match for a couple of entities. Andrew: Overall then Michael, what are your expectations out of reporting season? W what do you want to hear? I guess, you know, do you do you think guidance is gonna meet expectations? Michael Carmody: Look, we've had a very strong reporting season in the United States and you know we saw last night those those sort of AI infrastructure stocks, as you pointed to, did well post some results. Look, I think it's going to be patchy. look, I think it's it's fair to say that heavy market that we saw yesterday probably is sustained during that reporting season until the risks associated with earnings, you know, i is in a rear vision mirror. I do think volatility is is definitely going to be a feature. We we saw that with a few results yesterday. If you miss, it's going to be very painful. To answer your question directly, I I I think you've got to be really selective. Having some defensive positioning in the portfolio through reporting season makes sense from my perspective. I do think you you want to be exposed to those names where you have confidence there's not going to be an earnings miss. And what I what I mean by that is those sectors where earnings look like they're fairly transparent and predictable. And I've got to say those AI exposed infrastructure names are probably front and center. If you ask me for you know a sector that's likely to deliver consistently and in line with expectations as far as the fiscal year 26 performance is concerned. Andrew: And Michael at and next level of course are recently taking out new records on the local market. how do you think we're set up into the latter half of the year, do you think we'd make further gains? Michael Carmody: Yeah, look, I think it's a stock pickers market. I'm gonna say that to you. I'm a stock picker. I think we can see it we can see an environment where you know, we've got an Australian market that's dominated by four banks and two resource names. I think we can see an environment where, from a share price perspective, they don't do a lot of upside work for you. But below those large cap names, I think there's a universe of names that can actually do quite well. win contracts associated with this this CAFEC infrastructure bill that's underway in Australia can deliver, you know, subsequent earnings revisions. And so look, I think that the index probably has you know the ability to s sort of tread water to move s you know modestly up. and I think underneath that there are real opportunities for investors to make some good returns, provided they are are are sensible and accurate with their stock picking over the next twelve months? Andrew: Well Michael, hope you have a great day. Thanks for joining us in Centennial Asset Management. Michael Carmody: My pleasure. You too. Bye for now. Andrew: And that is your Osbiz morning wrap. I hope you have a great day. I'm Andrew Gagan. Thanks for listening.