July, 2023
The global economy expanded in the second quarter despite weakness in manufacturing. The regional banking mini crisis in the U.S. flared up again early in the second quarter with the failure of another bank but then calmed. The U.S. and European economies have shown surprising resilience, helped by strong labor markets. China’s economic recovery continued during the period, although it was uneven and did lose some momentum. The reopening has largely benefited the services component of the economy, while slowing growth momentum globally has meant weaker-than-hoped manufacturing activity.
Inflation generally eased in developed economies, largely driven by moderation in the goods component of inflation. However, core inflation remained more stubborn. This caused developed central banks to continue tightening. The Bank of Canada resumed its tightening after a pause that started in January; the Reserve Bank of Australia also resumed rate hikes after a brief pause. Despite hotter inflation in Japan, the Bank of Japan maintained its accommodative monetary policy. The People’s Bank of China (PBoC) moved to become even more accommodative late in the second quarter.
June, 2023
The global economy expanded in the second quarter despite weakness in manufacturing. The regional banking mini crisis in the U.S. flared up again early in the second quarter with the failure of another bank but then calmed. The U.S. and European economies have shown surprising resilience, helped by strong labor markets. China’s economic recovery continued during the period, although it was uneven and did lose some momentum. The reopening has largely benefited the services component of the economy, while slowing growth momentum globally has meant weaker-than-hoped manufacturing activity. Inflation generally eased in developed economies, largely driven by moderation in the goods component of inflation.
However, core inflation remained more stubborn. This caused developed central banks to continue tightening. The Bank of Canada resumed its tightening after a pause that started in January; the Reserve Bank of Australia also resumed rate hikes after a brief pause. Despite hotter inflation in Japan, the Bank of Japan maintained its accommodative monetary policy. The People’s Bank of China (PBoC) moved to become even more accommodative late in the second quarter.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/204185574.pdfMay, 2023
The first quarter of 2023 saw the reacceleration of the global economy. Despite some headwinds created by aggressive monetary policy tightening in 2022, the first months of the year were characterized by a relatively strong global economy. The situation was helped by a low unemployment rate in Western developed countries, a robust rebound for the Chinese economy thanks to its reopening and a mild winter in Europe, all of which led to lower energy prices. China’s economy benefited from a strong post-COVID reopening as well as improved pricing and investment in the property sector. Europe saw better-thanexpected economic strength, helped by lower energy prices. Developed central banks continued to hike rates during the quarter. However, major central banks became less aggressive, downsizing the level of their rate hikes as they neared the end of their respective tightening cycles. One major central bank, the Bank of Canada, decided to enact a conditional pause of its tightening cycle. Inflation generally moderated, largely driven by some balance in the goods component of inflation. However, services ex-housing inflation is a significant concern for the U.S. Federal Reserve, especially given that the labormarket remains tight. The last month of the quarter saw problems erupt in the banking sector, which came under pressure as a result of aggressive monetary policy tightening. However, the issues did not appear to be systemic, and a rapid response from policymakers helped to calm markets.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/fs_WST_MMF0112AU-1.pdfApril, 2023
The first quarter of 2023 saw the reacceleration of the global economy. Despite some headwinds created by aggressive monetary policy tightening in 2022, the first months of the year were characterized by a relatively strong global economy. The situation was helped by a low unemployment rate in Western developed countries, a robust rebound for the Chinese economy thanks to its reopening and a mild winter in Europe, all of which led to lower energy prices. China’s economy benefited from a strong post-COVID reopening as well as improved pricing and investment in the property sector. Europe saw better-thanexpected economic strength, helped by lower energy prices. Developed central banks continued to hike rates during the quarter. However, major central banks became less aggressive, downsizing the level of their rate hikes as they neared the end of their respective tightening cycles. One major central bank, the Bank of Canada, decided to enact a conditional pause of its tightening cycle.
Inflation generally moderated, largely driven by some balance in the goods component of inflation. However, services ex-housing inflation is a significant concern for the U.S. Federal Reserve, especially given that the labormarket remains tight. The last month of the quarter saw problems erupt in the banking sector, which came under pressure as a result of aggressive monetary policy tightening. However, the issues did not appear to be systemic, and a rapid response from policymakers helped to calm markets.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/201944493.pdfFebruary, 2023
During the September quarter, Karara was replaced by Acadian as the manager of the portfolio. Acadian generated very strong performance over the quarter from stock and industry sector selection relative to the S&P/ASX Small Ords index. Good stock selection in Banks, Consumer Discretionary, Energy, Industrials, IT, Metals and Mining, while a large overweight in the Energy secotor was the main contributor to sector outperformance. Stock selection in Gold dectracted performance. Some of the larger stock contributors included oveweigths in New Hope and NIB and underweight Brainchip, Magelln and Megaport.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/199473943.pdfDecember, 2022
During the September quarter, Karara was replaced by Acadian as the manager of the portfolio. Acadian generated very strong performance over the quarter from stock and industry sector selection relative to the S&P/ASX Small Ords index. Good stock selection in Banks, Consumer Discretionary, Energy, Industrials, IT, Metals and Mining, while a large overweight in the Energy secotor was the main contributor to sector outperformance. Stock selection in Gold dectracted performance. Some of the larger stock contributors included oveweigths in New Hope and NIB and underweight Brainchip, Magelln and Megaport.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/198266370.pdfOctober, 2022
During the September quarter, Karara was replaced by Acadian as the manager of the portfolio. Acadian generated very strong performance over the quarter from stock and industry sector selection relative to the S&P/ASX Small Ords index. Good stock selection in Banks, Consumer Discretionary, Energy, Industrials, IT, Metals and Mining, while a large overweight in the Energy secotor was the main contributor to sector outperformance. Stock selection in Gold dectracted performance. Some of the larger stock contributors included oveweigths in New Hope and NIB and underweight Brainchip, Magelln and Megaport.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/194068402.pdfSeptember, 2022
During the September quarter, Karara was replaced by Acadian as the manager of the portfolio. Acadian generated very strong performance over the quarter from stock and industry sector selection relative to the S&P/ASX Small Ords index. Good stock selection in Banks, Consumer Discretionary, Energy, Industrials, IT, Metals and Mining, while a large overweight in the Energy secotor was the main contributor to sector outperformance. Stock selection in Gold dectracted performance. Some of the larger stock contributors included oveweigths in New Hope and NIB and underweight Brainchip, Magelln and Megaport.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/192856324.pdfAugust, 2022
Global markets were rattled in June after several central banks lifted interest rates to fight inflation, stoking fears of recession. The US Federal Reserve lifted its benchmark rate in the biggest increase since 1994, while central banks in Switzerland, England, New Zealand and Australia all followed. Data in the US showed inflation running at the highest level in 40 years. In Australia the broad-based S&P/ASX 300 Index ended the month down 2.76% while the Small Ordinaries Index fell 7.01%. The US Fed lifted the official interest rate by 0.75% as it intensified efforts to combat inflation. Fed Chairman Jerome Powell pointed to another 0.50% to 0.75% increase at the July meeting however he added that large increases like that in June would not become ‘‘common’’.
In Australia, the Reserve Bank blindsided many economists when it increased the cash rate from 0.35% to 0.85%, the largest increase in 22 years, and forecast inflation to peak above 7% later this year. ‘‘While inflation is lower than in most other advanced economies, it is materially higher than earlier expected,’’ Governor Phillip Lowe said, citing supply chain and Ukraine as the main contributors
Governor Lowe noted that a cash rate of 2.5% was a ‘‘reasonable’’ expectation for how high rates would get to ‘‘at some point’’, but how fast they got there would be determined by future events. The yield on the 10-year Australian government bond rose to 4.2%, a level not seen since 2014. The yield on the three-year bond surged 15 basis points to 3.82%, the highest level since March 2012.
Commodity prices were mixed. Supply chain pressures saw Brent Oil climb 10% to $122 while Iron Ore prices dropped 5% to$137 as China Covid restrictions impacted demand. Gold fell US$60 to US$1,852 largely reflecting the strength of the US dollar, the secondbest performing fiat currency this year to date, coming in behind the Russian ruble.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/192180053.pdfJuly, 2022
Global markets were rattled in June after several central banks lifted interest rates to fight inflation, stoking fears of recession. The US Federal Reserve lifted its benchmark rate in the biggest increase since 1994, while central banks in Switzerland, England, New Zealand and Australia all followed. Data in the US showed inflation running at the highest level in 40 years.
In Australia the broad-based S&P/ASX 300 Index ended the month down 2.76% while the Small Ordinaries Index fell 7.01%. The US Fed lifted the official interest rate by 0.75% as it intensified efforts to combat inflation. Fed Chairman Jerome Powell pointed to another 0.50% to 0.75% increase at the July meeting however he added that large increases like that in June would not become ‘‘common’’. In Australia, the Reserve Bank blindsided many economists when it increased the cash rate from 0.35% to 0.85%, the largest increase in 22 years, and forecast inflation to peak above 7% later this year. ‘‘While inflation is lower than in most other advanced economies, it is materially higher than earlier expected,’’ Governor Phillip Lowe said, citing supply chain and Ukraine as the main contributors.
Governor Lowe noted that a cash rate of 2.5% was a ‘‘reasonable’’ expectation for how high rates would get to ‘‘at some point’’, but how fast they got there would be determined by future events. The yield on the 10-year Australian government bond rose to 4.2%, a level not seen since 2014. The yield on the three-year bond surged 15 basis points to 3.82%, the highest level since March 2012. Commodity prices were mixed. Supply chain pressures saw Brent Oil climb 10% to $122 while Iron Ore prices dropped 5% to$137 as China Covid restrictions impacted demand. Gold fell US$60 to US$1,852 largely reflecting the strength of the US dollar, the secondbest performing fiat currency this year to date, coming in behind the Russian ruble.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/191251516.pdfJune, 2022
Global markets were rattled in June after several central banks lifted interest rates to fight inflation, stoking fears of recession. The US Federal Reserve lifted its benchmark rate in the biggest increase since 1994, while central banks in Switzerland, England, New Zealand and Australia all followed. Data in the US showed inflation running at the highest level in 40 years.
In Australia the broad-based S&P/ASX 300 Index ended the month down 2.76% while the Small Ordinaries Index fell 7.01%. The US Fed lifted the official interest rate by 0.75% as it intensified efforts to combat inflation. Fed Chairman Jerome Powell pointed to another 0.50% to 0.75% increase at the July meeting however he added that large increases like that in June would not become ‘‘common’’. In Australia, the Reserve Bank blindsided many economists when it increased the cash rate from 0.35% to 0.85%, the largest increase in 22 years, and forecast inflation to peak above 7% later this year. ‘‘While inflation is lower than in most other advanced economies, it is materially higher than earlier expected,’’ Governor Phillip Lowe said, citing supply chain and Ukraine as the main contributors. Governor Lowe noted that a cash rate of 2.5% was a ‘‘reasonable’’ expectation for how high rates would get to ‘‘at some point’’, but how fast they got there would be determined by future events. The yield on the 10-year Australian government bond rose to 4.2%, a level not seen since 2014. The yield on the three-year bond surged 15 basis points to 3.82%, the highest level since March 2012. Commodity prices were mixed. Supply chain pressures saw Brent Oil climb 10% to $122 while Iron Ore prices dropped 5% to$137 as China Covid restrictions impacted demand. Gold fell US$60 to US$1,852 largely reflecting the strength of the US dollar, the secondbest performing fiat currency this year to date, coming in behind the Russian ruble.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/190343136.pdfMay, 2022
Global stocks endured another white-knuckle month in March, punctuated by the US Federal Reserve’s first postpandemic interest rate rise and soaring commodity prices that sent bond yield curves into inversion. While most markets were rattled by geo-political events and rising interest rate concerns, the ASX’s heavy weighting to resources and energy proved an asset: the broad-based S&P/ ASX 300 Index ended the month up 6.9% while the Small Ordinaries Index was up 5.26%. The prospect of a ban on Russian crude oil supplies by the West pushed oil prices as high as $US139 a barrel, while European gas, nickel and wheat all hit record highs. The commodities rally intensified fears that inflationary pressures will persist as those prices make their way through the supply chain and slow economic growth. The US Federal Reserve presented a hawkish tone after it increased its benchmark Fed funds target interest rate range by 0.25% to 0.25% to 0.50% in March. Policy makers now see the Fed funds rate rising to a range between 1.75% and 2% by year end, compared with 0.75% to 1% in December, or a quarter of a percentage point rate increase at each of the Fed’s six remaining policy meetings this year. Bond markets responded dramatically with yields on five year US bonds moving higher than on 10-year bonds – presenting an inversion of that end of the curve, historically a precursor to recession. Both the Fed and the European Central Bank lowered GDP expectations for 2022, raising fears of stagflation. Fed Chair Jay Powell played down the idea that the Fed’s interest rate path would lead to recession. Asked if there was something that would prevent a 50 basis point rise at the next meeting in May, Mr Powell said ‘‘nothing’’, quipping that this was an ‘‘executive summary’’. Australian bond yields tracked global peers to scale fresh threeyear peaks. The three-year rate jumped above 2% for the first time since 2018 while ten-year yields rose to 2.71%.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/189242947-1.pdfApril, 2022
Global stocks endured another white-knuckle month in March, punctuated by the US Federal Reserve’s first postpandemic interest rate rise and soaring commodity prices that sent bond yield curves into inversion. While most markets were rattled by geo-political events and rising interest rate concerns, the ASX’s heavy weighting to resources and energy proved an asset: the broad-based S&P/ ASX 300 Index ended the month up 6.9% while the Small Ordinaries Index was up 5.26%.
The prospect of a ban on Russian crude oil supplies by the West pushed oil prices as high as $US139 a barrel, while European gas, nickel and wheat all hit record highs. The commodities rally intensified fears that inflationary pressures will persist as those prices make their way through the supply chain and slow economic growth
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/188177602.pdfOctober, 2021
While most equity market valuations remain at near record levels, the same can be said for most other asset classes, including bonds, property and speculative crypto currencies. While many commodities are also at elevated levels e.g. thermal coal and LNG, a number of others still remain well below previous peaks, most notably oil which has steadily strengthened over the past month. The cheap cost of money and excessive liquidity have pushed up values across all major global asset classes. Markets are now questioning if we are past the point of maximum liquidity (given the US Federal Reserve has signalled the tapering of bond purchases), and just as importantly whether inflationary pressures are “transient”, persistent, or somewhere in between. The most pertinent question facing all investors is: what all of the above means for future central bank policy action and in turn, for bond yields? - the single most important yardstick for valuations globally. Any rapid spike in bond yields (and cost of capital) is sure to unnerve investors. As the world emerges from Covid- related lock-downs, Governments and policymakers will have little appetite for any meaningful tightening in financial conditions while the recovery is still fragile, so any transition is likely to be “managed” in an attempt to smooth outcomes.
In an uncertain macro environment and with medium term inflation concerns somewhat elevated, our focus remains on identifying businesses that can drive growth irrespective of the prevailing economic backdrop, and those that have a reasonable degree of pricing power. Particularly in light of technological change, some of these companies have selfcreated opportunities that never existed, allowing them to generate heightened organic growth over and above that likely to be delivered by the average industrial company.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/181965191.pdfJune, 2021
As the global economy reopens after the pandemic, prices are rising around the world. In China, surging commodity costs drove factory-gate inflation to its highest level since 2008 in May. The producer price index climbed 9% from a year earlier, following a 6.8% gain in April according to the National Bureau of Statistics. Still, consumer inflation remains relatively subdued, rising just 1.3% over the past twelve months, suggesting retailers are not yet hiking prices in the face of soft domestic demand. In Australia, the ripple effect of shifting interest rate expectations in the US manifest themselves in the September 2022 bank bill futures contract, which now implies a 0.34% official cash rate in September 2022, up from 0.25% at the start of the month. The December 2022 contract implies a rate of 0.48%, or almost two full rate rises by the end of next year, and the June 2023 counterpart anticipates 0.73%, or three increases.
Unemployment unexpectedly plunged to pre-covid levels 5.1% in May after the number of employed Australians surged by 110,000 – triple the expected figure. Unemployment is now running six months ahead of Reserve Bank forecasts that it would end 2021 at 5%, raising the spectre of the RBA lifting rates earlier than forecast should the rapidly tightening jobs market lead to a stronger than anticipated pick-up in worker pay. Amongst commodities, the ramifications of central banks foreshadowing tighter monetary conditions and a surging USD weighed on metal prices. Copper led the way, falling 14% from its May highs before recovering to end the month down 8%. Zinc was down 3%, Aluminium 1% and Nickel was flat. Oil rose, WTI +9%, Brent +8% after OPEC talks broke down raising fears of a repeat of 2020’s price war. The gold price fell 7% in USD-terms and 4% when priced in AUD.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/178464958.pdfDecember, 2020
Global markets were boosted by a pro-cyclical rotation during the December quarter that was inspired by the US election and positive vaccine developments. In Australia, an interest rate cut, the implementation of yield curve control and a $100bn quantitative easing program also laid the groundwork for an impressive 13.79% return for the broad-based S&P/ ASX 300 Index. The Small Ordinaries gained a similar 13.83%. in Australia, steadily easing restrictions allowed the domestic economy to bounce out of recession after GDP rose 3.3% in the September quarter - the strongest quarterly growth rate since March 1976. The quarterly rebound steered the year-on-year contraction to 3.8%, up from negative 6.4% in the June quarter. RBA governor Philip Lowe told a Parliamentary committee that fiscal stimulus had played a “critical role” in supporting the economy through the pandemic and he now expected unemployment to peak between 7% and 8% with employment levels during the quarter running only 1.7% below pre-pandemic levels. Even so, the RBA cut interest rates from 0.25% to 0.1% at its November meeting and launched a $100bn bond-buying program in response to “high unemployment and subdued inflation for an extended period”.
The Board noted that the cash rate would not be lifted until inflation is “sustainably” back within the bank’s 2-3% target range. Commodity price movements during the quarter were overwhelmingly positive and skewed to re-opening sentiment. Iron ore (+34%) rose to levels last seen in 2014 following robust China demand and Vale lowering output forecasts for the third time in 2020. Oil (WTI +25%, Brent +27%) gained on expectations of a demand recovery and OPEC-led supply restrictions. Industrial metals were all stronger for the quarter: copper +18%, nickel +14%, aluminium +12%, zinc +13%. The gold price was flat in USD-terms and down 7% in AUD-terms on a rising Australian dollar.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/fs_WST_MMF0112AU.pdfSeptember, 2020
Global markets fell in September over concerns the global recovery could stall without further stimulus. Europe’s rising Covid cases and the risk of another US wave this winter also influenced the risk-off sentiment. In Australia, the broad-based S&P/ ASX 300 Index fell 3.66% while the Small Ordinaries Index declined 2.82%.
In the US, growing pessimism surrounded potential for bipartisan compromise between Republicans and Democrats over an additional coronavirus relief proposal prior to the November election. At the time of writing both sides were still said to be far apart after the previous $600 per week coronavirus relief package expired at the end of July.
Federal Reserve chairman Jerome Powell added to a chorus of voices calling for further support, saying the US economy has a long way to go before recovering from the pandemic. The Federal Open Market Committee released a statement reaffirming August’s policy shift to keep interest rates low until the goal of maximum employment is achieved. FOMC member forecasts do not expect rates above zero before the end of 2023.
September US non-farm payrolls of 661,000 were below consensus expectations 850,000 although the prior two months were revised higher by 145,000. The report came amid rising concerns around a stalling labour market recovery with 22 million jobs lost since the start of the pandemic and a recent wave of layoff announcements as corporates look to cut costs. The unemployment rate fell to 7.9% vs consensus 8.2% although the report noted a labour force participation decline of 0.3% to 61.4%.
The ISM Manufacturing Index for September 55.4 missed the 56.3 estimate, also down from 56 in August, driven by a 7.4 point decline in new orders. August CPI 0.4% month-on-month beat consensus 0.3% following July's 0.6% reading. The 1.3% year-on-year rate was higher than July's 1.0%. August retail sales disappointed with a 0.6% rise versus 1.0% expected and a downward revision to July.
ticker: MMF0112AU
commentary_block: Array
factsheet_url:
Provider’s Own Factsheet
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PDF take the “Market and Portfolio review”
release_schedule: Monthly
fund_features:
OnePath Wholesale Emerging Companies Trust aims to achieve returns (before fees, charges and taxes) that exceed the S&P/ASX Small Ordinaries Accumulation Index, over periods of five years.
- The fund invests predominantly in a diversified portfolio of smaller companies in accordance with a disciplined Australian shares investment process.
- Suitable for investors seeking higher long-term returns and targeted exposure to the Australian small cap equity market.
- Minimum investment time horizon is 7 years.
manager_contact_details: Array
asset_class: Domestic Equity
asset_category: Australian Small Cap
peer_benchmark: Domestic Equity - Small Cap Index
broad_market_index: ASX Index Small Ordinaries Index
structure: Managed Fund