The InvestSense Podcast

Australia outperformed this week. The ASX 300 rose 0.9% while the Nasdaq shed 4.5% — and around 6% over the past fortnight — with emerging markets dragged lower by Korea and its large chipmakers. The S&P 500 finished roughly flat, and markets with more defensive exposures, the UK as well as Australia, edged higher. Most of the damage came in a single week of accelerating pessimism about the AI trade, and some of the places where defence has shown up are less obvious than the usual suspects.

Get access to the graphs: www.investsense.com.au/industry-articles/asx-up-while-nasdaq-falls-4-5-and-the-ai-trade-becomes-a-credit-story

 Join the InvestSense Community to receive weekly insights from our investment team: https://www.investsense.com.au/investsense-insights?utm_source=Podcast+&utm_medium=MarketSenseCheck

Australia had a thin data week and a noisy global one. Westpac's consumer confidence index fell from 84.4 to 80.4, with mortgages costing more after the Reserve Bank's recent tightening, a reminder of where the shift in interest rate environment is biting the most. The dollar tried and failed to clear 70 US cents, finishing near 69.8. The local ten-year moved the opposite way to most of the world, easing from about 5.44% on futures to 5.33% by Friday, and the ASX 200 added 0.6%. The Firmus float closed its book short of the $44 billion sought and was subsequently pulled which was a useful read on the appetite for large, debt-dependent listings which may prove to be a bellwether event, at least locally.

Get access to the graphs: www.investsense.com.au/industry-articles/quiet-at-home-loud-everywhere-else 

Join the InvestSense Community to receive weekly insights from our investment team: https://www.investsense.com.au/investsense-insights?utm_source=Podcast+&utm_medium=MarketSenseCheck

The RBA hiked to 4.60%, August CPI came in softer than expected, and US payrolls missed badly. Meanwhile high-yield spreads wobbled for the first time this cycle and Google issued a record-breaking bond into the Australian market. We talk through a quarter that moved a great deal and arrived nowhere.

Get access to the graphs: www.investsense.com.au/industry-articles/a-quarter-of-movement-not-much-progress 

Join the InvestSense Community to receive weekly insights from our investment team: https://www.investsense.com.au/investsense-insights?utm_source=Podcast+&utm_medium=MarketSenseCheck

The S&P rose while the thirty-year hit 5.49%. The RBA is set to hike Tuesday, unemployment is now in the range the Governor wanted, and oil is back above US$104 after Trump rejected Iran's ceasefire offer. This week we discuss why this is a grind rather than a spike

Get access to the graphs: www.investsense.com.au/industry-articles/ai-oil-and-a-flat-local-market-fy25-26-in-review  

Join the InvestSense Community to receive weekly insights from our investment team: https://www.investsense.com.au/investsense-insights?utm_source=Podcast+&utm_medium=MarketSenseCheck

We asked Andrew Hunt last week whether, after years of "yes, but liquidity", we were finally coming to the end of something. His answer was an unambiguous "Yes, I think we are." The mechanism is the US current account. Hunt's long-standing rule is that once the American deficit approaches 1% of global GDP — roughly a tenth of world savings — funding becomes a problem. For 18 months it has been comfortably funded by extraordinary Asian surpluses. Korea, Taiwan and Singapore have been running surpluses near 20% of GDP, driven first by selling chips into the AI build-out and now, with capacity exhausted, by 60–70% price inflation in those same chips. The proceeds were recycled into US assets, principally through sovereign wealth funds.

Join the InvestSense Community to receive weekly insights from our investment team: https://www.investsense.com.au/investsense-insights?utm_source=Podcast+&utm_medium=MarketSenseCheck

Every defensive allocation starts from a price, and for most of the past decade that starting point was generous: bond yields had room to fall and credit spreads had room to compress. Today the position is reversed. Government yields are grinding higher rather than mean-reverting, and credit spreads sit near their tights. The defensive leg of a diversified portfolio is being asked to do its job from the least helpful entry point in years, with both of its traditional components compromised at once.

Join the InvestSense Community to receive weekly insights from our investment team: https://www.investsense.com.au/investsense-insights?utm_source=Podcast+&utm_medium=MarketSenseCheck

Three major central banks raised rates last week: the Fed to 4%, the ECB earlier in the week, and the Bank of Japan to 1.25% on Friday. In almost every case, markets are priced for at least one more increase this year. The Bank of Japan matters more than most assume: one explanation for the synchronised rise in yields across the US, Europe, Japan and Australia is hedge funds unwinding the "yen carry trade", borrowing cheaply in yen to buy higher-yielding assets elsewhere.

Get access to the graphs: www.investsense.com.au/industry-articles/three-central-banks-five-days-one-direction 

Join the InvestSense Community to receive weekly insights from our investment team: https://www.investsense.com.au/investsense-insights?utm_source=Podcast+&utm_medium=MarketSenseCheck

Three central banks are hiking at the same time, oil touched $110, and a trillion dollars of AI capital expenditure is landing in bond markets alongside already large government deficits. All that said equity moves were comparatively contained, and the damage was in rates, not shares which is unusual

Get access to the graphs: www.investsense.com.au/industry-articles/hawks-at-home-oil-abroad-and-a-harder-question-about-playing-defence-in-these-markets 

Join the InvestSense Community to receive weekly insights from our investment team: https://www.investsense.com.au/investsense-insights?utm_source=Podcast+&utm_medium=MarketSenseCheck

There is a respectable case that this is noise, if painful noise. Much of the move in long yields has tracked oil almost tick for tick, and one analysis circulating this week put the rolling correlation between the two at its highest in four decades. On that reading, the bond market is a hostage of the Gulf: a durable ceasefire takes oil down and yields with it, and central banks return to something closer to normal policy considerations. Nothing structural has to be true for that story to work.The alternative reading is that oil is the trigger, not the cause. US federal debt sits near 123% of GDP, a level last seen in 1946, with deficits above 6% of GDP and real yields close to zero on trailing inflation. Bond markets in Japan and the UK are under the same pressure as the US, which is hard to square with a purely Middle Eastern explanation. And the last time inflation drove both equities and bonds down together in real terms, in 2022, the standard 70/30 portfolio was found wanting and many are now much more aware that traditional portfolio construction is equipped to deal with a growth shock rather than an inflation shock.

Get access to the graphs:  www.investsense.com.au/industry-articles/just-noisy-bond-markets-or-is-the-start-of-something 

Join the InvestSense Community to receive weekly insights from our investment team: https://www.investsense.com.au/investsense-insights?utm_source=Podcast+&utm_medium=MarketSenseCheck

When we spoke with Andrew Hunt in late July, his advice was to stay at the party. Getting defensive, he said, would be like standing on a railway track in front of an oncoming locomotive: you might know the track is broken behind you, but the train won't notice you. The impetus  was extraordinary, a US credit boom that refused to stop, and trillions of dollars of Asian trade surpluses being recycled into global markets. The level of the market is faith times liquidity, and while faith may have peaked, liquidity had not. 

Join the InvestSense Community to receive weekly insights from our investment team: https://www.investsense.com.au/investsense-insights?utm_source=Podcast+&utm_medium=MarketSenseCheck