TRANSCRIPT
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Ricardo Goncalves:
Coming up, uranium stocks continue to climb. China leaves interest rates on hold, and we preview Thursday's all important jobs numbers. It's your daily 10 minute business and finance news wrap for this Monday the 15th of January, 2024. Let's go straight to the Australian share market today because it was little move down only 0.03%, so basically flat 7,496. But uranium stocks really outperform the likes of Boss Energy up 9.6% and Paladin Energy up 7.4% for all of that and for his take on the day's market action. I spoke with David Berton-Jones, the joint Chief Investment Officer at Acquits. David, first of all, what's driving the market today?
David Berton-Jones :
Well, today is relatively quiet. The US is closed for Monday. It's a long weekend over there and even here in Australia there's a lot of market participants that are still away. So there's not a lot of new news for markets to react to at the moment. Not until later in the week when we get the Aussie employment numbers, they should be market moving. But over the weekend, the Taiwanese election, it came and went without much drama. The CPI print in the US late last week was fairly well-behaved. And so I think markets are essentially just treading water in line with the soft landing narrative that we've had in play for quite some time now.
Ricardo Goncalves:
When we look at the market, something that I've noticed today anyway, uranium stocks are really powering ahead, but they've also been doing well for the past month. What's behind this?
David Berton-Jones :
Every few years or so, the market gets very excited about nuclear power, specifically nuclear is a growing share of the energy production mix. Now I've been in this game for almost 20 years now and I think this is at least the fifth such cycle of enthusiasm that I've seen. However, adding to the current enthusiasm, KAP, that's Cat Z Prom, a difficult name, which is the world's largest uranium producer, put out a pretty giant production downgrade. So there's a lot less yellow cake in the making from them over the next few years. And that's exacerbating these price movements that we can see to say the least. And the uranium price as you note it has indeed gone more or less vertical over the last few months.
Ricardo Goncalves:
Okay, so that's uranium. I'm keen for your take on the retail space as well because over the weekend in the UK Burberry, the luxury product maker issued a profit warning. So there seems to be concern about that top end of the market. But at the same time here, if we compare retailers like Super retail Group posted its best ever first half sales JB HiFi also doing quite well, what's your take on this kind of divergence in a rising interest rate environment?
David Berton-Jones :
Yes, you're right. The luxury goods producers have been on the nose by contrast, super retail, JB Hi-Fi. These are two very good companies to start with, but they also have a product range that really resonates with value conscious buyers. So I think in addition to their general expertise, they operate business models that are pretty conducive to the current environment where cost of living pressures are dominating consumer choices. I think generally speaking that the rate cycle will weigh on the consumer sector more broadly and that we can expect, I think the December retail sales number from the A BS to be quite a large negative number. So those two companies aside, I think conditions will prove quite challenging for the retail stocks as those rate hikes continue to buy.
Ricardo Goncalves:
Speaking of rate hikes, what's the market's latest view on the direction of interest rates and I guess more specifically the speed at which they may start to fall both in the US and here in Australia?
David Berton-Jones :
Yes, so the market is pricing cuts, although nowhere near as much as the US we here in Aus are closer to 75 basis points worth of cuts that are priced in and that's starting six or so months from now relative to the US where they are looking at over 150 basis points worth of cuts starting in all likelihood from May, from May onwards. Now our economy is at a slightly different stage to our American friends and hence there's a somewhat different path for the term structure of interest rates. But the eventual direction for both is down and down by quite a bit. In terms of interest rates,
Ricardo Goncalves:
You mentioned at the top of the interview the inflation numbers that came out of the US last week, which basically showed a bit of a re-acceleration in inflation in the US China last week, said that it is suffering deflationary pressures, I think inflation down 0.3% in December year on year. I think a lot of the market's expecting some sort of stimulus to come through, whether it be from central banks or the government. But today the People's Bank of China held a key interest rate instead of cutting it. So what's your take on China at the moment and the implications for Australia?
David Berton-Jones :
Gosh, I must ensure I remain succinct here while trying to squeeze in the answer. It is a bit of a mouthful. So normally weak demands means that you cut rates to try and stimulate demand to try and reinflate demand in China the way that their economy is configured. It's almost the other way around the opposite, the inverse of what we're used to. So China directs a lot of capital toward manufacturing and toward infrastructure. Now those are supply side measures and they're funded through keeping the household share of income low funded through keeping wages share low. And that's resulting in this systemic weaker pervasive inflation that they're experiencing. So more stimulus is in fact the problem for China rather than the solution. And so that's wildly unfamiliar to most of us when thinking about the economics in Australia or the US or the eu, et cetera. Eventually, if they China try to raise the household share of GDP, it's going to have to come in the form of lower investment ultimately in the form of a lower government share I think. And ultimately that's going to be very negative for high ore and commodities in general and that would negatively impact a lot of our companies here in the resources space.
Ricardo Goncalves:
And finally, given that this is the first time I'm speaking to you this year, where do you see the opportunities for investors in 2024?
David Berton-Jones :
There's a lot. There are some very reasonable alternatives out there, which is quite refreshing to start the year. We've been continuing to allocate capital to the beaten up or underperforming parts of the market. So that's global real estate investment trusts. G REITs, as you might know them by their acronym, investment grade medium duration credit looks good to us. Small cap equities are particularly beaten up pocket of the market that looks very cheap we think, and even emerging market equities, particularly those with a relatively modest exposure to China. So most EM equities products come with China in it and we're looking for those that have relatively minimal exposures to China in them. We also think that Europe will look very interesting as they slide into recession. The entire region is quite cheap on a valuation basis and if it continues to get cheaper, we think that that will be a particularly compelling opportunity for those with a longer time horizon and for those that can tolerate a bit of risk, a bit of volatility.
Ricardo Goncalves:
David Bert and Jones there from a quitters and he mentioned briefly there the jobs numbers to come out on Thursday, which he expects to be market Moving for more on what is expected here is Matt Cowgill an economist at Seek.
Matt Cowgill:
I expect unemployment to probably remain stable at around 3.9%. It wouldn't be a shock if it either ticked up to four or even fell to 3.8%, but something around the current mark is likely. I do expect to see further signs of a slowdown though in these jobs numbers. So full-time employment we've seen has lagged behind part-time employment in recent months. I expect that to continue in the December data. I expect there to be other signs of softening including a rise in youth unemployment, which we have seen in recent months as well. So we've seen a small rise in job ads in December, but over the course of the past few months, they still have fallen and I'd expect that a slight fall in labor demand to be reflected in the A BS statistics come Thursday.
Ricardo Goncalves:
That is Matt Cowgill from Seek. This SBS on the money stream is provided for informational purposes only. The content in this stream should not be understood as constituting advice or a recommendation. It is not personal advice and it does not consider your personal circumstances or objectives. You should contact a licensed professional before making any financial decision.
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