February, 2023
After January’s strong start to 2023, February shifted into reverse gear with a softer performance across global markets. Central banks continued hiking interest rates despite global inflation prints beginning to show signs of abating. Softening in what has been exceedingly strong labour markets, as rate hikes weigh on confidence and household spending, is a clear indicator. That said, we are not out of the woods yet, as we believe there remains a long path to controlling inflation. As mentioned above, the RBA kicked off 2023 with another rate hike of 25bps, taking the cash rate to 3.35%. The policy statement took a more hawkish tone than December’s, with stronger language around its resolve to bring inflation back to target. The final paragraph of the statement: ‘The Board expects that further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary’. This statement implies that there are going to be at least two more hikes in this cycle. The Statement on Monetary Policy (SoMP) includes updated forecasts for the economy, in which the outlook for economic activity remains broadly unchanged. The RBA is still expecting a soft landing, with the unemployment rate to increase but remain well below where it sat pre-pandemic. What changed was the outlook for underlying inflation (the inflation measure which dampens the impact of volatile items) and wages growth. The RBA is now expecting annual wages growth to be around 0.5% higher in the December quarter of 2022 and the June quarter of 2023. This is feeding into higher underlying inflation expectations, which is now approximately 0.75% higher for the June quarter 2023. By 2025, underlying inflation and wages growth are broadly in line with what was expected in November. These forecasts are based on the cash rate reaching 3.75% in mid-2023, up from the 3.5% expected back in November. In other words, the RBA believes the economy can withstand a cash rate of 3.75% without slowing down too sharply
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/BT-Diversified-Index-Defensive-Fund-factsheet-9.pdfJanuary, 2023
Consumer sentiment started 2023 on a positive note, rising to 84.3 in January, an increase of 5.0% in the month. Sentiment is at its highest level since September, though still deeply pessimistic as the mood among consumers is downbeat among higher interest rates and elevated cost-ofliving pressures. Encouragingly, consumers are slowly becoming less pessimistic about the future.
The weak consumer sentiment is expected to flow through to a slowdown in household spending. However, this is taking time as spending has been supported by robust household savings, an unleashing of pent-up demand, and a tight labour market. These factors are expected to fade as we move through 2023. The December quarter’s headline inflation read came in at 1.9%, to be 7.8% in annual terms.
This annual rate is the highest in nearly 33 years, though was under the RBA’s forecast of 8%. Goods inflation is showing some signs of easing, though this may be happening too slowly for the RBA’s liking. More troubling for the RBA is that price pressures have broadened and inflation in the services industry has accelerated to 5.5% p.a. - its highest rate since 2008. This was driven by the hospitality industry with consumers seemingly blasé by the 10.9% quarterly increase in the price of holiday travel and accommodation.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/BT-Diversified-Index-Defensive-Fund-factsheet-8.pdfDecember, 2022
2022 was a year unlike any other. It was initially predicted to be one of repair and recovery following the global pandemic, though it was found to be rather rife with political uncertainty, market volatility, interest rates, supply chain disruptions, and of course, resultant high inflation. As we move into 2023, indicators are that inflation may have peaked, with language from central banks now debating whether they will pivot or pause their rate hike strategies.
Australia
There is growing evidence the economy is starting to slow as the weight of this year’s rate hikes take a toll. Data released in December indicated retail spending fell in October for the first time this year as consumers remain deeply pessimistic about the economic outlook. Moreover, November’s inflation numbers unexpectedly showed an easing in price pressures. This data may be an early sign that inflation has started to roll over and that it will peak in the current quarter, as expected by policymakers. However, one month’s number is not enough to constitute a trend. Also, the monthly inflation measure is not as important as the quarterly inflation measure that the RBA focusses on, although it has been providing reliable guidance. Encouragingly, China has also further relaxed COVID-19 restrictions, supporting a further improvement in globalsupply chain disruptions. Furthermore, the unemployment rate fell to its lowest in nearly 50 years and the wage price index reveals an acceleration is underway in wages growth.
November, 2023
Share markets continued their upward momentum over the month as investors weighed in on the debate over ‘are we at peak rates and peak inflation yet?’. With support from strong employment data and a softening view on a global recession coming sooner than later, headwinds of house price falls, consumer sentiment waning, a cautious business community, and ongoing geopolitical forces centring around Europe and Asia, all seemed to take a back seat to investor concerns. As we look ahead to December, all eyes will be on the sustainability of this back-to-back monthly rally. Markets will be directing attention to data released for US payrolls, job openings, consumer spending, and the upcoming Fed meeting mid-month. The Consumer Sentiment Index fell sharply to 78.0 in November from 83.7 in October. The read is now below the 79.0 recorded during the GFC and near the lows recorded during the deep recession of the early 1990s (64.6) and the initial phase of COVID (76.5). Interestingly, the divergence between consumer confidence and consumer spending is still quite wide. While consumer sentiment has been deeply pessimistic for most of this year, retail spending has remained resilient, although is now showing subtle signs of slowing.
The source of this resilience could include the strength of the labour market, savings accumulated during the pandemic, or a larger proportion of households with fixed-rate mortgages – who haven’t yet felt the pinch of higher rates. Either way, it ironically appears that consumers are socialising in busy retail and hospitality venues talking about how bad the economy is. It should be remembered that monetary policy acts with long and variable lags. For example, it takes around two to three months for a cash rate increase to be reflected in higher minimum repayments for variable rate mortgage holders. Around 35% of Australian households are currently on fixed-rate mortgages and won’t face higher repayments until their fixed-rate term expires, and the RBA expects around 60% of these fixed-rate mortgages to roll into higher variable rates by the end of 2023.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/BT-Diversified-Index-Defensive-Fund-factsheet-6.pdfOctober, 2022
Markets rallied over October against a strong headwind of a tighter US rate rise trajectory, mixed economic data across the globe, a new UK prime minister and still no let-up of the Chinese leadership’s zero-COVID policy. Concerns remain over energy supply as Europe moves towards the winter months and whilst on the topic of Europe, the impacts of their central banks’ October rate rise to combat record levels of inflation being reported in that region. As we look ahead, global recession remains a front-of-mind topic of discussion.
Australia
Producer price inflation continued to increase through the September quarter. The Producer Prices Index (PPI), which measures the average change over time in the selling prices received by domestic producers for their output, accelerated 1.9% over the quarter. This brought the index’s rise to 5.6% over the year to September. This suggests that inflationary pressures are still building in the pipeline. Headline inflation continued to accelerate rapidly in the September quarter, surging to 7.3% - the highest annual pace in over 32 years.
While global supply-chain disruptions and energy price shocks are major drivers of inflation, pressures continue to spread across a range of spending categories. Strong domestic demand is marking up against constrained supply, leading to further increases in prices. Of all the spending categories and sub-categories measured by the Bureau of Statistics, over 85% grew at an annual pace of more than 2.5% (the mid-point of the RBA’s 2-3% target band). The last time more than 85% of categories and sub-categories grew at an annual pace of over 2.5% was in 1990.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/BT-Diversified-Index-Defensive-Fund-factsheet-5.pdfSeptember, 2022
Markets continued to fall over September as rate rises were delivered over the month. The expectations of rate hikes in the near future also sparked the acceptance that a global recession has a high probability of occurring, as the fight to temper inflation continues. With the UK in a state of economic flux, and no end in sight with the war in the Ukraine, there remains a deep uncertainty as to what lies ahead.
Australia
In early September the Federal Government’s Jobs and Skills Summit took place, which included two days of speeches and discussions with industry, government, unions, and business leaders.
The Government announced 36 outcomes and initiatives that would be implemented following the Summit. These are grouped into five key themes and categories: – A better skilled, better trained workforce.
– Addressing skills shortages and strengthening the migration system.
– Boosting job security and wages, and creating safe, fair and productive workplaces.
– Promoting equal opportunities and reducing barries to employment.
– Maximising jobs and opportunities in our industries and communities.
One of the main policies coming out of the summit included changes to the migration program to accelerate and increase the number of people coming to Australia to help employers fill the record number of job vacancies across the economy.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/BT-Diversified-Index-Defensive-Fund-factsheet-4.pdfAugust, 2022
The bullish sentiment in July that saw a strong market recovery was tempered over August as a more hawkish tone from Central Banks pushed most markets into negative territory. While the argument over whether we have hit ‘peak inflation’ continues, we saw US inflation moderate, however the Eurozone’s continues to rise. Political uncertainty continued in the UK, where looking ahead, a fourth Prime Minister in six years was elected. This is in the face of an economy that has now slipped behind India in the World Bank’s latest global GDP rankings.
Australia
Over August, wage pressures across the economy have been growing steadily. Survey measures suggest that total labour costs (including employment growth) are increasing at the fastest rate on record. Reports of oversized wage increases are common, particularly in industries with strong labour demand and labour supply issues. This includes IT, professional services, construction, and parts of the services sector that previously had a heavy reliance on international students and migrants. These wage pressures are expected to flow through into the Wage Price Index (WPI) over time. Growth in the WPI had only returned to around pre-pandemic levels in the March quarter. For the June quarter, we predict that wages grew by 0.9%, to be 2.9% higher over the year. If our forecasts prove to be correct, this will result in the strongest quarterly wages growth since mid-2012 and the strongest annual growth since mid-2013.
July, 2022
After a benign June month for the world’s share markets, July saw a bounce back driven by easing fears of central banks’ over-tightening of monetary policy, stronger consensus on peak inflation and a solid Q2 reporting season out of the US, which all helped shape a good month for markets in the face of still evolving geopolitical tensions.
July saw the Westpac Melbourne Institute Index of Consumer Sentiment fall 3.0% to 83.8 from 86.4 in June, marking the seventh consecutive monthly fall. The survey, covering 1200 respondents, was conducted over the four days from July 4th to July 7th. Last month we noted the Index was already around levels that, since the beginning of the survey in 1974, had only been seen during periods of major disruption in the Australian economy, including the COVID pandemic, the Global Financial Crisis, the recession in the early 1990s, the slowdown in the mid–1980s, and the recession of the early 1980s. This fall in July means that the pace of the sentiment deterioration is now also in line with these infamous periods. The Index has now fallen 19.7% since December 2021, a precipitous tumble comparable to the two–month plunge during COVID (–20.8%), the six– monthly declines seen heading into the Global Financial Crisis (–29.7%), the early 1990s recession (–20.5%), the mid–1980s downturn (–23.8%), and early 1980s recession (–18.8%).
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/BT-Diversified-Index-Defensive-Fund-factsheet-2.pdfApril, 2022
Once again, the month of April saw inflation continue to dominate the headlines. Central Banks commenced transitioning to their next phase of monetary policy settings. Key economic indicators remain mixed, with supply chains issues remaining a concern, consumer & business confidence fell – leading to most risk markets ending the month in the red.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/BT-Diversified-Index-Defensive-Fund-factsheet-1.pdfJune, 2021
June started with the continuing outbreak of COVID-19 in Melbourne and by the end of the month Sydney was feeling the full force of the Delta variant. The resulting three-week lockdown has seen considerable pressure being placed on the domestic economy. Whilst the RBA stayed firm on its 0.10% cash rate at its June meeting, industry consensus is leaning further towards a pre-2024 rate hike, despite what has been indicated by the RBA. Neighbouring China will allow couples to have a third child to combat a falling birth rate, whilst in Europe consumer confidence rose from -5.1 to -3.3 in June, representing a return to pre-pandemic levels. Global COVID-19 vaccinations reached 2 billion doses early in the month.
The Group of Seven (G7) nations reached a landmark deal in June to impose a minimum corporate tax rate of at least 15% on foreign earnings. The rules could help states collect tax from digital (or technology) companies based on where they make money instead of purely where they are headquartered. G7 leaders also debated their responses to China’s continued effort to win influence around the world as well as rebuking the nation for its alleged forced labour practices.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/BT-Diversified-Index-Defensive-Fund-factsheet.pdfDecember, 2020
The Advance Defensive Multi-Blend Fund produced a positive return over the December quarter, resulting in a positive 12 month performance. The December quarter started with investor optimism as markets climbed higher during early October. However, investor sentiment soured mid-month as uncertainty over the US election and climbing COVID-19 cases reversed much of the gains. The Nov 3 US election coupled with approvals for a series of vaccinations resulted in strong equity returns during November that persisted into December, despite being softened by further lockdowns and increasing case rates into the western holiday period.
The domestic equity market, as represented by the S&P/ASX 300 Accumulation Index, was the stand out performer over the quarter, returning 13.8%, thanks in part to the Australian response to the pandemic and the additional monetary stimulus the RBA has been able to deliver through rate cuts. Global developed equities, as measured by the MSCI World ex Australia Net Return AUD Hedged Index, returned 11.7% over the quarter vs. a 5.7% increase in the unhedged index. The Australian Dollar appreciated against its developed market peers due to continuing global risk-on sentiment, ending the quarter buying 76.9c USD, up from 71.6c at the start of the quarter.
Emerging markets measured by the MSCI Emerging Markets AUD Index returned 11.2%. The domestic and international listed property sectors returned strongly over the quarter. The domestic listed property sector returned 13.2% but global listed property lagged, returning 10.6%, as measured by the S&P/ASX 300 A-REIT Index and the FTSE EPRA/NAREIT Developed AUD Hedged Net Total Return Index respectively. Global bond yields reached record lows during the COVID-19 pandemic but increased during the December 2020 quarter. Domestic yields, as measured by the Australian 10 year government bond yield rose 18bps, leaving yields at 97bps, compared to 137bps 12 months prior.
International yields followed a similar path, with US 10 year yields rising 23bps. A further tightening in credit spreads helped to offset some of the rise in yields, resulting in a -0.1% return for the Bloomberg Ausbond Composite 0+ Yr Index. International fixed interest markets, as measured by the Bloomberg Barclays GlobalAggregate Total Return AUD Hedged index returned 0.8%. Over the quarter funds with higher allocations to growth assets outperformed those with a higher allocation to defensive assets, due to equity markets outperforming fixed interest assets.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Advance-Defensive-Multi-Blend-Fund-factsheet.pdfasset_class: Multi-Asset
asset_category: 21-40% Growth Assets - Low-Cost Diversified
peer_benchmark: Multi-Asset - 21-40% Low-Cost Index
broad_market_index: Multi-Asset Moderate Investor Index
manager_contact_details: Array
ticker: WFS0588AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
Fund Factsheet
fund_features:
BT Index Defensive Fund aims to provide investors with predominantly income and some growth returns, with a low probability of loss over the short term which tracks the overall return of a diversified portfolio of underlying investments. The Fund invests in a diverse mix of assets with the majority in the defensive assets of cash and fixed interest (around 70%) and a modest investment in growth assets such as shares and property (around 30%). The Fund’s exposure to these asset classes will be obtained primarily by investing directly into our sector specific funds. The Fund may also hold assets directly including derivatives, currency and other unit trusts.
structure: Managed Fund