Infinity Portfolio Plus Update April 2024
Broader Market Moves
Key Market Drivers
It was a choppy week on global markets, as the US shrugged off mixed economic data to post its best weekly gain since November (S&P500 +2.7% and Nasdaq +4.2%) on the back of strong earnings by Tech leaders. Domestically, the moves were more subdued (S&P/ASX 200 +0.1%), as residual strength in inflation shocked economists and re-ignited the prospect of future rate hikes.
The US Q.1 GDP advance report delivered the worst of both worlds – i.e. softer than expected growth and higher than expected inflation. The Treasury market focused on the disappointing inflation news, further delaying Fed rate cuts with yields jumping across the curve. Equity investors equities didn’t like the growth/inflation prints either, but markets finished the week on a strong note, as Alphabet and Microsoft overshadowed soft earlier guidance issued by Meta.
In Australia, recent CPI and employment data means the RBA will need to revise higher their near-term inflation outlook and lower their near-term unemployment outlook at the May meeting. Both of these reduce the need for rate cuts in the short term, and policy easing now looks increasingly less likely this side of Christmas. Local bonds were sold off aggressively this week, with yields jumping 25-30 b.p. across the curve.
Likewise in the US, higher than expected core PCE prices, and lower than expected jobless claims, continued to support the notion that current conditions provide the Federal Reserve with leeway to delay interest rate cuts to tackle stubborn inflation.
BHP announced a circa $60b scrip takeover bid for British resource heavyweight Anglo American. A deal would see the company become the world’s largest copper producer, increase its Queensland coking coal footprint, and lift its iron ore presence in Brazil. The offer is conditional and non-binding, and involves asset spin-offs, so a deal remains far from certain at this stage. Initial market reaction was negative, with BHP’s share price -4.6% in Australia on Friday.
Macro/Economic Newsflow
Q.1 domestic CPI came in higher than expected, at 1.0% for the March quarter on both the headline and trimmed mean measure. This was above the 0.8% expected by the market and the RBA in its February SoMP. Whilst annualised CPI of 3.6% continues to decelerate, it was above market expectations for 3.4% and continues to highlight that the path back to 2-3% target will not be non-linear and with ongoing challenges.
59% of the CPI basket saw annualised price increases of more than 4%, compared to 42% last quarter. Services inflation rose by 1.4% in the March quarter, accelerating from recent periods, with annual services inflation easing only modestly from 4.6% in the December quarter to 4.3%.
Economists remain divided as to whether inflation will trend lower and return to the 2-3% target band sooner than the late 2025 estimate of the RBA, or whether sticky services inflation, and solid wages growth, will see inflation stall at higher levels.
Meanwhile, the US economy expanded an annualised 1.6% in Q.1 2024, compared to 3.4% in the previous quarter and below forecasts of 2.5%. It was the lowest growth since the contractions in the first half of 2022.
The US March core price index for personal consumption expenditures (PCE), which excludes food and energy, rose by 2.8% y-o-y (vs 2.7% consensus), but the 3-month annualised pace accelerated to 4.45% from 3.74%. This was the highest since March 2023 and suggests the economy remains too hot for the Fed to begin rate cuts. Market watchers expect Chairman Powell to push back on imminent cuts at this week’s May FOMC meeting, but still suggest easing as likely later this year.
Major Share Price Moves — Infinity Portfolio Plus Direct Portfolios
Stocks in the News — S&P/ASX 200
NB: These stocks sit across one or both of the Infinity Portfolio Plus Quality Growth and Quality Core Model Portfolios.
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