- ASX SPI 200 futures little changed at 7,219.00
- Dow Average little changed at 34,418.47
- Aussie up 0.1% to 0.6672 per US$
- U.S. 10-year yield rose 1.8bps to 3.8545%
- Australia 3-year bond yield fell 8.8 bps to 3.96%
- Australia 10-year bond yield fell 5.6 bps to 3.97%
- Gold spot up 0.1% to $1,921.55
- Brent futures down 0.6% to $74.92/bbl
- 14:30: (AU) July RBA Cash Rate Target, est. 4.10%, prior 4.10%
US stocks shook off warnings about cooling growth and data showing a slowdown in manufacturing to edge higher in subdued trading ahead of the Independence Day holiday.
In a shorted session that ended at 1 p.m. Monday in New York, the S&P 500 Index rose 0.1%, led by Tesla Inc. The electric-car maker jumped 6.9% after it reported record quarterly sales, helping lift shares of rivals and battery suppliers. Bank stocks, including Bank of America Corp., climbed. The Nasdaq 100 Index advanced 0.2%, holding onto gains after notching its best-ever first half of a year.
Investors are tempering expectations for stocks in the second half of the year after strong gains so far. While central banks have kept up their hawkish rhetoric, signs of moderating US inflation have fueled big gains across technology shares.
Still, if an economic slump fails to materialize and political crises can be averted inflation could bottom out at 3% before resuming a climb, according to Jim Bianco, president and founder of Bianco Research. That could mean more interest rate increases.
The manufacturing sector painted a grim picture as US factory activity fell to its weakest level in more than three years. Production and new orders data also suggested a pullback.
Traders will be looking to the upcoming earnings season and additional data, such as Friday’s nonfarm payrolls, for clues on the health of the economy.
Despite the positive start to the year for equities, there are signs of cracks beneath the surface. The US Treasury yield-curve inversion intensified, indicating investors expect Fed policy to rein in future growth. The two-year note’s yield briefly exceeded the 10-year rate by as much as 110.8 basis points, according to data compiled by Bloomberg.
Australia’s second largest pension fund has slashed the value of its local office assets by as much as 20% as commercial property woes hit the country’s biggest landlords.
Australian Retirement Trust, which manages A$240 billion ($159 billion) of assets, said its Australian offices have seen “material downward movements ranging between 5% to 20%,” in an emailed statement. Unlisted property comprised almost 9% of its default pension offering at the end of last year, or about A$4.3 billion.
After a long buying spree, global property owners and lenders are grappling with changes in how people work and shop in the wake of the pandemic. While the MSCI World Real Estate Index is down 27% since the start of 2022, most commercial assets are privately held and valuations can take months or even years to respond to shifts in interest rates and changes in supply and demand.
ART has been gradually cutting its exposure to both office and retail properties. Its concerns grew as the pandemic accelerated trends toward online shopping and working from home. Cbus, a A$73 billion pension fund, has written down some of its commercial real estate properties by as much as 10%, according to press reports last week.
Australia’s A$3.5 trillion pension sector is also facing increased regulatory scrutiny over unlisted assets, amid concerns valuations remained high even as the value of listed property assets fell. Many funds have increased their holdings of private assets both locally and abroad in recent years.
“We independently value our property assets regularly,” Andrew Fisher, ART’s head of investment strategy, said in the statement. “Our recent experience has seen varied levels of value reductions depending on the impact of current market factors relative to the underlying fundamentals of the property.”
ART doesn’t plan to exit the office sector entirely, and still sees opportunities in prime properties, according to Fisher. Its existing investments include a stake in a technology park in the inner Sydney suburb of Redfern, which lists major lender Commonwealth Bank as a long-term tenant.
The falling office values didn’t largely impact the annual performance of ART’s default pension fund, which posted a 10% return for the year through June, Fisher said in an interview Monday.
“It’s been second tier office buildings where you’ve seen the most meaningful downward valuations,” he said. “Industrial property is still holding up quite strongly at the moment, so that’s been one of the bright spots in the property portfolio.”
While asset valuations overseas had also been hit, ART had multiple strategies abroad including residential properties and holiday parks, he said.