Henry Herkes, CFA

This month, our model predicts a close to zero chance of a RBA rate cut but a 4.8% probability of a rate rise — a slight increase over last month’s estimate. With recent inflation numbers easing, why do we see this uptick? Here’s what’s influencing the model’s assessment: - Our model relies on the ABS trimmed mean CPI, which excludes the effect of the recent energy rebates. This measure of inflation remains high at 3.5% (though down from 4.0%). - RBA minutes continue to focus on inflationary risks, keeping the possibility of a rate increase on the table. - For the first time since September 2022, the unemployment rate experienced a decrease, albeit a slight one, noticeable only at the second decimal place.

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Rising Capex is an interesting signal for the Australian Market. Could be some growth potential coming through for 2025 Source: NAB Tapas Strickland https://lnkd.in/ggEkfDYW

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The RBNZ made the right call today, though we certainly weren’t convinced they would. In cutting the Official Cash Rate 0.25%, the Bank acknowledged recent developments in “surveyed inflation expectations, firms’ pricing behaviour, headline inflation, and a variety of core inflation measures are moving consistent with low and stable inflation”.  They have also slashed their growth forecasts, which are now almost identical to ours, and the gap has closed between our respective forecasts for the unemployment rate (we are still a tad higher). They are projecting a steady decline in the OCR that is now largely in line with our own forecasts. A gap opens up towards the end of the forecast horizon as we see a higher terminal rate. But there’s a couple of years before we have to worry about that! The good news is that starting now means the Bank can take a gradual approach to easing. The reality is we don’t know how the post-pandemic economy is going to respond to interest rate cuts, let alone where our potential growth and neutral interest rates sit.  They (and we) will be working that out as we go along. We expect there will be many challenges and uncertainties in the months ahead and nothing is guaranteed.

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The Reserve Bank has another much anticipated OCR Review on Wednesday. It is almost certain to follow up its surprise OCR cut at its August meeting with another cut next week. The question is by how much? Up until recently, the consensus was that a 0.25% cut was the most likely outcome in October, and a 0.5% cut was seen as a lower probability. However, the vibe amongst economists and in financial markets has evolved to now seeing a 0.5% OCR cut as a done deal. Not only that, financial markets are pricing another 0.5% OCR cut at the Reserve Bank's last meeting of the year in November. I think two more 0.5% OCR cuts this year are the right thing to do and now the most likely outcome. While businesses have expressed more optimism about their prospects, especially now the Reserve Bank has begun OCR cuts, there is little sign of imminent improvement in the economy. Meanwhile, inflation is fading and significant spare capacity has emerged. The reality is, the OCR remains overly restrictive in a very subdued economy. Given the long lags before changes in the OCR have an impact on the economy, cuts need to be made in earnest now. Therefore, the Reserve Bank is likely to hastily reduce the OCR to lower the interest burden on households and businesses. It's possible the OCR could be significantly lower in a years time than the 4.1% the Reserve Bank predicted in August.

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Macquarie Bank has once again slashed their fixed rates, signaling a significant shift in the lending landscape. We’re seeing variable rates dip to below 6% with several major banks for loans with LVRs of 70% or less. This aggressive reduction in fixed rates often hints at the banks' forecasts for the near future. While this trend may not bode well for cash savers—who are also facing declining rates on savings accounts—it presents a fantastic opportunity for those looking to enter the property market or refinance. Now is the perfect time to consider how you can reduce your outgoings and enhance your quality of life. If you’re ready to explore your options and make the most of these offers available, give me a call today. Let’s discuss how we can make this happen for you!

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A new survey has found advisers are planning to increase allocations to global equities as well as Australian small caps in the next six months, however they believe high valuations in the market remain concerning. https://lnkd.in/eJ9DXeN4

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🚀 𝗧𝗵𝗲 𝗕𝗲𝗻𝗲𝗳𝗶𝘁𝘀 𝗼𝗳 𝗚𝗲𝗻𝗲𝗿𝗼𝘂𝘀 𝗧𝗮𝘅 𝗜𝗻𝗰𝗲𝗻𝘁𝗶𝘃𝗲𝘀 𝗳𝗼𝗿 𝗔𝘂𝘀𝘁𝗿𝗮𝗹𝗶𝗮𝗻 𝗦𝘁𝗮𝗿𝘁-𝘂𝗽𝘀 𝗮𝗻𝗱 𝗜𝗻𝘃𝗲𝘀𝘁𝗼𝗿𝘀 🚀 While recent discussions, such as this article from the Sydney Morning Herald, have drawn attention to the downsides of tax incentives for venture capital and early-stage companies, they often miss a key point. Hundreds of companies are actively using these incentives to drive innovation, create jobs, and contribute to the future of the Australian economy. https://lnkd.in/gHVNjkDH The real story? These incentives empower Australian start-ups to: 1. 𝗜𝗻𝗻𝗼𝘃𝗮𝘁𝗲 𝗮𝗰𝗿𝗼𝘀𝘀 𝗱𝗶𝘃𝗲𝗿𝘀𝗲 𝘀𝗲𝗰𝘁𝗼𝗿𝘀, from tech, professional services, manufacturing to healthcare. 2. 𝗘𝗺𝗽𝗹𝗼𝘆 𝘁𝗵𝗼𝘂𝘀𝗮𝗻𝗱𝘀 𝗼𝗳 𝗔𝘂𝘀𝘁𝗿𝗮𝗹𝗶𝗮𝗻𝘀, helping to strengthen the economy. 3. 𝗣𝗮𝘆 𝗳𝘂𝘁𝘂𝗿𝗲 𝘁𝗮𝘅𝗲𝘀 𝗮𝘀 𝘁𝗵𝗲𝘆 𝗴𝗿𝗼𝘄, scale, and succeed. According to the ATO R&D tax incentive transparency report 2021–22, over 11,500 companies (98% of which are Australian owned) claimed R&D expenditure. Of these companies, 48% were small companies. For investors, these incentives provide crucial support to back promising ventures while enjoying the tax benefits. The ecosystem benefits both companies seeking growth and investors looking for opportunities to shape the future. As any investor in innovative companies, especially venture and early stage, knows, the potential for high returns carries significantly higher risks of losing their invested capital when compared to investing in listed, developed companies. Let’s not overlook the success stories. Incentives fuel the engine of innovation, and the rewards will pay dividends in more ways than one. How do you view these tax incentives? Open for abuse or a necessary avenue to fund innovation and employment (or both)? Do you invest in venture capital and early stage companies? #Innovation #Startups #VentureCapital #TaxIncentives #EconomicGrowth #Investing

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A snapshot of June achievements by brokers and how we have helped! Multiple standard size private lending deals from $800k to $1mil Multiple mid size deals from $1.2mil to approx. $2.8mil Larger size deals funded at about $9mil A trophy asset funded at just over $40mil Alt doc and near prime home loans (N1 Plus), multiple deals ranging from $600k to $1.9mil. What to expect in a broker's journey to fund a deal? Stage 1: Initial meeting and fact find Stage 2: Indicative Terms Sheet issued, valuations quote or reassign Stage 3: Due diligence, terms negotiation, borrowers' situations' clarifications, evidence docs, etc. Stage 4: Loan documentation & clauses, Conditions Precedent fulfillment, independent legal advice and/or financial advice, settlement preparation Stage 5: Funded and post-settlement conditions, regular follow ups on exit strategy Private capital is hungry for deals backed by quality asset, making brokers play a crucial role to provide the deal flow. 99% of our deal flows from brokers and referrals. Private lending is rarely straightforward and financiers of any size need to tap the expertise of brokers to make everyone's work more efficient and productive. We have the appetite to do more with our broker partners! Please reach out in the new FY25! N1 offers real flexibility in private lending. Reach out to our friendly team and speaks directly to decision makers. We control and lend our own fund and we don't have restrictive policy. N1H currently manages about $155mil and funding sits in our account ready for immediate deployment. N1H, as a direct lender, aims to uphold elevated standards in private lending through ethical practices, diligent governance, and a commitment to strong compliance. Have a scenario? [email protected]

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How could potential central bank moves impact the markets? Ken Fisher explains why they don’t necessarily make stocks rise, in The Australian:

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How could potential central bank moves impact the markets? Ken Fisher explains why they don’t necessarily make stocks rise, in The Australian:

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How could potential central bank moves impact the markets? Ken Fisher explains why they don’t necessarily make stocks rise, in The Australian:

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Major Melbourne developer APH Holding has collapsed into administration owing at least $150 million to MaxCap, a private credit fund, which has become one of the country’s biggest real-estate financiers.

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Australia's economy is walking a fine line: recent ABS data revealed sluggish GDP growth and subdued household spending for the September quarter, while the ABS monthly CPI indicator posted a 3.5% trimmed mean inflation result - still above the target band. Against this backdrop, our Precision Economics AI/ML model forecasts a 98.7% probability that the RBA will hold the cash rate steady at 4.35% during its December meeting. The model now considers a rate decrease to be slightly more probable than a rate increase (0.7% vs 0.5%). This shift largely reflects the model's analysis of the RBA November minutes, which it interprets as having transitioned from a slightly restrictive to a broadly neutral sentiment on monetary policy direction.

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NAB has launched a new 15-year AUD Tier 2 subordinated bond with a 10-year non-call feature. The bond offers a fixed coupon of 6.342% p.a. for 10 years, paid semi-annually. This is noteworthy given that the demand for Australian bank Tier 2 bonds significantly exceeds the supply. The issue spread of 200 bps over the asset swap spread reflects a wider margin compared to similar bonds issued by other major Australian banks last year. Comparable bonds from these banks typically trade around ASW+165 basis points, driven by strong demand. Another Westpac bond trades at the highest margin of +190 basis points, indicating that NAB’s pricing is relatively fair and includes a modest new issue premium, incentivising investors to participate in the primary transaction. To read the full article click: https://lnkd.in/gdS8WmAY #bonds #fixedincome #AUDbonds #AUD

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Things That Stick Out: Wednesday Edition Wednesday sees another red flag raised over global macro with a rate cut by the Reserve Bank of New Zealand. It wasn’t a complete surprise, but the rapid shift in outlook is rather noteworthy. As recently as May, the Kiwis were still talking rate hikes and said they wouldn’t consider easing until the second half of next year. So reports that a larger 50 basis point reduction was even considered at today's meeting smacks of panic. Undoubtedly, it’s a reflection of the state of play in China, which accounts for about one-third of New Zealand’s exports. But it’s also a warning for the soft-landing camp in the US as to how quickly conditions may be deteriorating. See: Things That Stick Out: Friday Edition  and Things That Stick Out: Risk-Off Edition See original IGM post here: https://lnkd.in/ej3S-zjs IGM | Informa Connect #inflation #interestrates #nzd #rbnz #newzealand #china #financialmarkets #macroeconomics

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Super Funds Grow While Investment Managers Contract in Australia According to IBIS World, the number of employees in super funds grew by 1% between 2019 and 2024, while investment managers reduced their employee size by 2.1%. Why is this happening? There are likely several reasons. While there are fewer super funds than there were five years ago due to consolidation, the total assets in 2024 is a staggering £3.9 trillion, compared to just over £3 trillion in 2019. In many respects, one would have expected greater growth than 1% however we assume that there has been increased efficiencies with the consolidation and acquisition of different funds. Some of this growth can be attributed to the continued internalisation of the investment management function. Additionally, with the superannuation guaranteed rate gradually increasing to 12%, the growth will only continue as more mega funds appear. For investment managers, the fierce competition for super fund business has led to mounting pressure on margins, some portfolio management teams being made redundant, creating an environment where efficiency and cost management have become critical for sustaining profitability. Consequently, non-essential hiring is not being prioritised. It seems like a period of recalibration for investment managers. We have no doubt that, despite recent challenges, the investment management industry will continue to evolve to navigate the challenges of this rapidly changing domestic and global market. We're observing the release of more ETFs into the market, continual growth with private markets, funds associated with the energy transition and an emphasis on investing in environmentally and socially responsible funds. This will undoubtedly create more employment opportunities in these growth areas. Will be fascinating to watch this play out in the coming years.

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The year ahead in Asset Finance With our clients either 1. Hiring or 2. Making people redundant, my own forecasts for 2024/25 were tracking either Bullish OR Bearish, with only the narrowest path for a "soft landing". TRACTION GROUP we follow US metrics, as Australia seems to follow between 1-2 quarters behind. The good news is that in the USA, April 2024 Equipment finance figures showed: Month on Month (Mar 24 to April 24) 1. Volume: Up 18% 2. + 30days delinquency: Down to 2% (from 2.1%) 3. Charge offs: Down to 0.4% (from 0.5%) 4. Headcount: Increased 1.3% All in all, a bullish sigh for 2024/25 ahead!

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