Latest / ausbiz a.m / 17.09.26 with Fergus Humble, Morgans
Transcript
- Andrew: Good morning. Welcome to your morning wrap from Osbiz. It is Thursday, September 17th, and we are expecting a deeply negative start to the session with ASX futures down around seven-tenths of a percent. In a moment, we'll preview the day ahead with Fergus Humble. First, though, to global markets. And the US Fed has lifted interest rates by 25 basis points as expected and tipped another similar increase later this year. So US markets turning negative after Economic projections from Fed policymakers show they expect inflation to hold above target through to 2029. Short maturity bond yields and the US dollar rose in response, the US tenure yield remaining above 5%. Wall Street, the SP down around half a percent. The Nasdaq recovered to finish ⁓ flat, the Dow tumbled around one and a half percent among the commodities. Brent crude fell ⁓ around three percent overnight to 105 a barrel gold. Down slightly to 4,270. Bitcoin staying at s 76,000 US dollars and the Aussie dollar has fallen ⁓ in response. It's ⁓ currently at seventy point nine US cents. All right, well joining us to get across those market moves and the Fed decision. Fergus Humble from Morgans. Fergus, good morning to you. Fergus: Good morning Andrew, thanks having me. Andrew: So this was expected, ⁓ but with more rate hikes to come, obviously not great news for the market. ⁓ let's first go to that decision and perhaps what we've heard from Kevin Walsh. What did you make of it? Fergus: ⁓ yeah, I mean, as you said, w very well predicted by the market. I mean, I think it was ninety six percent up until yesterday that everyone thought the rates were going up. ⁓ I think there was this sort of slight trepidation thinking that he you know, can some concerns about the independence of the Fed. I think that's been put to bed now, luckily. ⁓ I think him being placed in there by Walsh and his, you know, previous ⁓ arguments with with Powell. ⁓ but luckily You know, the Fed remains in ⁓ independent, which is important, ⁓ and can, you know, put some minds at ease. But yeah, I think ⁓ the the the main concern there is just the fact that it seems that they are predicting rates at least another one. ⁓ some of them are actually pointing to potentially more than one. ⁓ I I have to admit it's not it's one of the first times I've actually really gone through the summary of economic projections ⁓ and the dot point. plot there has the sort of median rate about four point one. So I think there's a couple of the guy other guys on the board there that think think there might be more than more than one. sorry, more than two. So yeah, I mean I think it's ⁓ it's an interesting one. ⁓ and yeah, not great for markets certainly today. Andrew: Well well indeed it may be going forward so so what does this do perhaps for those earnings expectations? Fergus: Yeah, I mean I think ⁓ I mean it's gonna it's gonna hit the tech stocks hard ⁓ unfortunately. But ⁓ I mean I think it's more it's something that needs to needs to happen. Unfortunately, ⁓ inflation's just out of control. ⁓ I mean I think it's a lot of it's obviously the energy ⁓ markets, but as far as earnings, I think it's it's gonna be tough, a tough, a much tougher market. ⁓ you know, obviously we're getting into that sort of restrictive range of the of the Fed rates. So ⁓ yeah, I think it's gonna be ⁓ a tough period for tech, for REITs, a few other markets here at Australia. ⁓ but yeah, I mean that the other interesting point is on the in the for the from the Fed announcement last night was they're actually predicting that if ⁓ unemployment's not really going to rise, which I find interesting. So it seems like they're predicting that the market's actually gonna remain quite strong, which ⁓ kind of flies in the face of bringing inflation down. But ⁓ yeah, so it's it's I guess it's it's it's really gonna gonna be a ⁓ tough one to predict from here, I would say. Andrew: Yeah, in fact we the Kevin Walsh actually alludes to that saying ongoing strength in the US economy, which sort of defies, I guess, their overall projections there, given as you say, if ⁓ inflation remains ⁓ strong and sticky, then ⁓ doesn't neck necessarily reconcile, does it? But I mean, all that said, ⁓ if you've got exposure to the US market, what do you think you want to be doing right now in terms of positioning? Fergus: Yeah, so I mean the tech stocks, I mean, that's the that's the kind of the interesting part. I mean, they're the ones that are growing. They're the ones who are really growing their revenue and and but they're the ones that you would think in this kind of environment that are going to be the most negatively impacted. So it's an interesting one to pass to path to be sort of walking at the moment. ⁓ but I mean that kind of environment we just alluded to there, the fact that it's going to be low unemployment, high growth. ⁓ but with elevated inflation to me seems very supportive of US banks just based on the fact that I mean they can usually squeeze a a bit of bit of a better a better NIM out of higher rates. But with the combination of low unemployment, a relatively ⁓ resilient consumer and growing earnings, I mean, I would say the US banks based on that are looking like a pretty, pretty good spot to be. And then the tech stocks, I think you're just gonna need be really selective because obviously once some are going win, ⁓ this this ⁓ AI build out and spending doesn't seem to be slowing down. ⁓ but the ones, the sort of maybe sort of tier two lots slightly lower quality ones with a huge debt pile, ⁓ I think they're gonna be they're gonna be hit pretty hard. Andrew: So Fergus, inevitably this has consequences for our market. ⁓ we're obviously expecting a a a lower beginning as a result. ⁓ but going forward and I guess also going into our own decision from the central bank, the ⁓ Reserve Bank meeting week after next, with expectations they could hike as early as that meeting, certainly ⁓ one, maybe two to come by the end of the year. What does this mean for our equity market? Fergus: Yeah, I mean I think ⁓ obviously the big players in our tech market, so your your wise techs and zeros and ⁓ life three sixty, I think is gonna be ⁓ a tough little period coming up, ⁓ despite the fact that they seem to actually be reporting relatively well. ⁓ I just think that basically as soon as rates start going up, market just gets out of these kind of companies. So that's gonna be a little tough period for them. ⁓ and I think the pain for REITs, unfortunately, is likely to continue. ⁓ they've obviously got they're obviously very highly leveraged. So they're probably the most sensitive to this kind of ⁓ rate rise environment. and then yeah, I mean the other one, the other interesting one and for the ASX are the banks again. So they're obviously, I mean, as far as our ⁓ internal research is concerned, they are all I mean, the big four are all above where we would expect them to be, ⁓ well above our sort of price targets. But then they are, I mean, the higher rates are supportive of banks. ⁓ but then if it does start sort of crunching the consumer, ⁓ we do sort of start getting the the pullback in the in the property market and the mortgage start dropping off the cliff and we start maybe seeing higher rates of of ⁓ of you know poorly performing mortgages, then then that could that could be impacted negatively as well. But then I mean I mean I obviously our driving force is materials and resources and If the if the US is still strong and the economy's still growing, ⁓ then I would expect that to be probably where you'd wanna be wanna be, particularly those blue chips, your B HPs and your Rios. ⁓ I think they they should be should be pretty strong to keep up with ⁓ with US demand. Andrew: ⁓ d do you have some concern though in that regard, particularly I guess we're seeing higher rates across the world, which is likely to be well potentially a drag on economic economic growth, that is going to certainly hit demand for those resources. Fergus: Yes. And I mean and the and y obviously we will we'll see a a big dip in, I think, gold miners today. But I mean ⁓ the the actual growth expectations, I mean, certainly if the Fed numbers are t are to be believed, ⁓ are actually pretty good. So ⁓ it till until these ⁓ higher rates maybe start impacting the growth, ⁓ and ⁓ that's that's when we would start sort of maybe repositioning out of out of out of resources because of it's the very cyclical markets. If it if we do start seeing a bit of a downturn, then they're kind of one of the first ones to go. ⁓ but for now, while while things are heading heading upwards ⁓ as far as growth is concerned, then resources is not a not a bad place to be. Andrew: So, Fergus, if you want to take a more cautious approach and perhaps some defensive positioning, where do you want to be, do you think? Fergus: ⁓ I mean I would not be in I would maybe lighten off on some tech, particularly sort of the fringe tech names. always good to have a little bit of exposure, but maybe just be slightly under waste. I wouldn't be touching REITs with a unless I mean there's they're already at massive discounts. I think those discounts are going a little bit deeper in the next little while as well. Unless you're really desperate for yield, I would not be not be there. ⁓ As far as defensiveness is concerned, I mean, I think you you can't really go wrong with energy, I think, at the moment. I mean, we've got a few good energy players, ⁓ obviously Woodside with ⁓ a good exposure to oil, but also gas as well. ⁓ and I mean, hopefully healthcare might finally start getting a bit of love. I mean, they've historically the sort of defensive ⁓ in more defensive part of the market, but obviously very unloved at the moment. ⁓ that might sort of start coming back into play a little bit. I think we've got some really good, ⁓ really good numbers coming out of a few, like Rem Resmed and and Ramsey and a few of those kind of names. ⁓ I think maybe start ⁓ maybe layering into those as well. I think that's a good not a bad place to be. Andrew: Mind you, I mean they have ⁓ made a bit of a comeback. Obviously look at the likes of CSL which has ⁓ had a had a pretty good bounce given how far it's fallen. ⁓ certainly a couple of analysts I've spoken to saying, Yeah, maybe you take a bit of profit now, but overall you still think it's worth holding? Fergus: Yeah, I mean I'm I'm a big fan of CSL long term. ⁓ I mean, yeah, it might be sort of slowly getting back into that kind of expensive, defensive ⁓ space. But ⁓ I'm I I mean it I just I just I can't imagine that this healthcare sector generally is going to be so beaten down for so long. ⁓ CSL is such a high quality company that I just think it's even where I mean it's expensive relative to where it was a few months ago, but Historically it's still it's still not super, super expensive. So ⁓ I would be happy to buy to be sort of a a long term holder of of your CSLs and your res meds at the moment. Andrew: Hmm. And so overall in Fergus, do you feel as though the local market we're gonna sort of suffer from that seasonality that September, October we're gonna see some weakness ⁓ perhaps ⁓ as we move into the end of the year? Fergus: Yeah, definitely. And I think it's not helped by the fact that you know that we're in a potenti probably in a r ⁓ rate rise environment again. and coupled with the ⁓ you know, a lot of uncertainty, macro uncertainty around the world with the Middle East conflict. ⁓ and then there's also the tariff overhang, which doesn't seem to be going away, ⁓ which is also impacting inflation. So yeah, it's a it's it's not a great macro backdrop, ⁓ coupled with ⁓ potential some potential weakness on the on the horizon. Obviously we saw through reporting season that they report a lot of companies reported quite well, but the outlook was quite weak. So ⁓ I think it's yeah, this this probably towards the end of the year that we would love a sort of Christmas bounce, of course. ⁓ but yeah, I think the next next few months is going to be ⁓ yeah a pretty, pretty tough period. Andrew: Fergus, great to get your opinion on what's ahead. ⁓ hope you make the most of the day. Thanks for joining us from Morgans. And that is your Osbiz morning wrap. Hope you have a great day. I'm Andrew Gagan. Thanks for listening. Fergus: Thanks, Sandra.