New Zealand held interest rates steady at 5.5%, UK annual CPI y/y fell to 6.8%

Weekly Update | 18th August, 2023
Hue Frame

Frame Funds Management

Let’s hop straight into five of the biggest developments this week. 

If you’d prefer to watch this update, rather than read about it, please click below.

1. New Zealand held interest rates steady at 5.5%

The RBNZ sat on its hand yet again to hold interest rates at 5.5%, in line with market expectations. This was expected as inflation has cooled in recent months to the current 6% level. However, economists consider inflation to be too high to consider the latest pause as end of the current tightening regime.

2. Chinese industrial production plummeted to 3.7% y/y

Weakness in the Chinese economy has continued to become more apparent by the day. Annual production missed expectations as it came in at 3.7% vs 4.3% expected. The decline in production is largely attributed to waning internal demand caused by turmoil in the Chinese labour market. Fears of a possible global recession is gaining momentum as the Chinese property sector continues to suffer.

3. UK annual CPI y/y fell to 6.8% down from 7.9%

Inflation in the UK remined stubborn and unyielding. Despite rapid interest rate hikes in the twelve months to July, inflation remains at elevated levels, however, was down from the previous monthly reading of 7.9%. Positively, this was the lowest reading in 17 months. The UK inflation problem has now evolved and shifted to the all-important service sector, which will provide further complications for the BOE.

4. US retail sales rose 0.7% in July

The US consumer has continued to show resilience with better sales spending than expected. Despite cooling inflation across the board, retail sales grew 0.7% in July from the previous upwardly adjusted figure of 0.3%. The inference is that the US consumer is throwing caution out of the window and opening their wallet without restraint.

5. Australian unemployment rate rose to 3.7%

Historically high interest rates have started to have a negative impact on the Australian economy, with the labour market slowly feeling the effects. Restrictive borrowing terms are impacting businesses with the employment change m/m declining by -14.6k. Furthermore, the average monthly hours worked increased, an indication that families are going out of their way to pool in resources to mitigate price inflation in deteriorating economic conditions.

Below shows the performance of a range of futures markets we track. Some of these are included within the universe of our multi-strategy hedge fund.

*source finviz
*source finviz

Orange juice was the best performer this week, as it rallied to new highs on citrus supply squeeze after diseases and hurricanes disrupted plantations in the US East Coast and Brazil. The poor industrial production data from China heightened global recession fears, triggering a rally in the VIX, causing equities, energies and metals to sell off. Wheat plummeted after Turkey offered to allow access for Ukrainian wheat, easing pressure on markets. As mentioned in earlier weeks, 30-year bonds continued to decline (yields up).

Here is the week's heatmap for the largest companies in the ASX. 

*source tradingview.com
*source tradingview.com

Bloodbath. Financials & materials led the declines of the big four banks, BHP, RIO, and FMG all down over 3% for the week. Goodman Group, CSL and Cochlear were some of the only bright spots. Over the last few weeks, the ASX has been very volatile, with this week no different. The index has moved back to levels seen at the start of July, however, continues to be at a similar price that it was since mid-2021.

Below shows our proprietary trend following barometer which captures the number of futures contracts within our universe hitting new short and long-term trends.

*source Frame Funds Research
*source Frame Funds Research


........
This information is prepared by Frame Funds Management Pty Ltd (ACN 608 862 442) (Frame Funds, we or us) is a Corporate Authorised Representative (CAR No. 123 9068) of Primary Securities Limited (ACN 089 812 812 635) and is intended only for "wholesale clients" within the meaning of sections 761G and 761GA of the Corporations Act 2001 (Cth). This material is not intended to constitute advertising or advice (including legal, tax or investment advice) of any kind. These materials are not to be distributed to any person who does not qualify as a wholesale client and must not be copied, reproduced, published, disclosed or passed to any other person at any time without the prior written consent of Frame Funds. Primary Securities Ltd (ACN 089 812 635 635, AFSL 224 107) is the Trustee of, and issuer of units in, the Frame Futures Fund and the Frame Long Short Australian Equity Fund (Funds). In deciding whether to acquire, or to continue to hold, units in the Fund please read the current Information Memorandum available from Frame Funds. Past performance of the Funds is not a reliable indicator of future performance. The value of an investment in the Funds may rise or fall. Returns are not guaranteed by any person. Total returns are calculated before tax and after ongoing management costs. In preparing this information, we have not considered your investment objectives, financial situation or personal circumstances and therefore the Funds may not be suitable for you. Neither Frame Funds, Primary Securities Ltd, nor any of their respective related parties, directors or employees, make any representation or warranty as to the accuracy, completeness, reasonableness or reliability of the information contained in this publication or accept liability or responsibility for any losses, whether direct, indirect or consequential, relating to, or arising from, the use or reliance on any part of this material. Any rates of return, forecasts or estimates contained in this publication are not guaranteed. The content of this publication is current as at the date of its publication and is subject to change at any time. It does not reflect any events or changes in circumstances occurring after the date of publication.

Hue Frame
Founder
Frame Funds Management

Hue Frame is the founder of Frame Funds Management. Frame Funds is a quantitative funds management company, that manages assets for institutional and wholesale clients, and proprietary funds.

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.

Comments

Sign In or Join Free to comment