Markets Overview

  • ASX SPI 200 futures up 0.2% to 7,070.00
  • Dow Average up 0.2% to 35,495.36
  • Aussie down 0.4% to 0.6622 per US$
  • U.S. 10-year yield fell 5.0bps to 4.2705%
  • Australia 3-year bond yield fell 15 bps to 4.01%
  • Australia 10-year bond yield fell 14 bps to 4.36%
  • Gold spot up 0.3% to $2,046.59
  • Brent futures up 1.8% to $83.12/bbl

Economic Events

  • 10:30: (AU) Australia to Sell A$1 Billion 133-Day Bills
  • 10:30: (AU) Australia to Sell A$1 Billion 98-Day Bills
  • 11:30: (AU) 3Q Private Capital Expenditure, est. 1.0%, prior 2.8%
  • 11:30: (AU) Oct. Private Sector Credit MoM, est. 0.4%, prior 0.5%
  • 11:30: (AU) Oct. Private Sector Credit YoY, prior 4.9%
  • 11:30: (AU) Oct. Building Approvals MoM, est. 1.4%, prior -4.6%
  • 11:30: (AU) Oct. Private Sector Houses MoM, prior -4.6%

The rally that’s driving global bonds to their best month since 2008 gained further traction, with Treasuries climbing on bets the Federal Reserve will start cutting interest rates in the first half of 2024.

Hopes for a Fed pivot intensified after economic data emboldened the so-called Goldilocks scenario. Two-year yields dropped 10 basis points to 4.64%. Fed swaps priced in a quarter-point rate cut by May. The S&P 500 wavered near “overbought” levels.

Gross domestic product rose at the fastest pace in nearly two years, while consumer spending advanced at a less-robust rate. The Fed’s preferred inflation metric — the personal consumption expenditures price index — was revised lower. US economic activity slowed in recent weeks as consumers pulled back on discretionary spending, the Fed said in its “Beige Book.”

Bonds extended their November rally on speculation the Fed is done with its aggressive hiking cycle. A Bloomberg gauge of global sovereign and corporate debt has returned about 5% this month, heading for its best performance since the depths of the recession in December 2008 — when the Fed cut rates to as low as zero and pledged to boost lending to the financial sector following the collapse of Lehman Brothers Holdings Inc.

Wall Street is now gearing up for the release of the Fed’s preferred measure of underlying inflation on Thursday — seen by many as the most-important economic report this week.

Other News

Slot machine giant Aristocrat Leisure Ltd. has invited its biggest investors, including some of the country’s top pension funds, to Sydney next week for an unprecedented event at the gaming firm: a day devoted to ESG.

The guardians of the country’s retirement savings, among the top backers of the industry, will likely be watching keenly. Some funds concede that gambling, with its proven links to social harms, may become a tougher investment to justify to the millions of Australian workers that put their money in the country’s A$3.5 trillion ($2.3 trillion) pensions system.

“Society’s attitudes to what constitutes harm and the understanding of, let’s call it the true financial effects of harm, do change through time,” Ian Patrick, chief investment officer of the A$260 billion Australian Retirement Trust, said in an interview, without discussing any companies. “I think you’d expect investments to shift with that.”

Gambling stocks have gained an average 300% over the past decade, around 10 times that of the country’s benchmark S&P/ASX 200 index, according to a basket of 10 Australia-listed gambling shares. But as Australians lose about A$25 billion a year to such activities, more per capita than any other country, pension bosses are reflecting on how to align their investments with ESG ambitions as a pipeline of legislation to tackle social harms looms.

Ben Squires, CIO of NGS Super, would like to eventually strip gambling stocks from his A$14 billion fund, and is engaging with asset managers in the coming months on issues surrounding that.

“I don’t want it in the portfolio,” said Squires, referring to gambling in general and not naming any firms. “But there needs to be a thorough process that we go through to justify, on a financial outcome to members, why we would make those decisions.”

While the incoming gambling laws aren’t transformational, it’s still the most change seen in years. The state government of Victoria plans to impose betting caps, shorter opening hours for venues and slower machines, and New South Wales is reducing the number of allowed slot machines. Furthermore, a recent Parliamentary inquiry made 31 recommendations including banning online gambling adverts and national regulation.

About 185,000 electronic gaming machines — known as “pokies” locally — were operating in Australia in 2021, according to data collated by the Queensland Treasury. More than 90% of those machines are located outside of casinos, often omnipresent in community venues that entice customers with cheap alcohol. AustralianSuper is the second-biggest shareholder in Aristocrat, the dominant maker of slot machines in Australia and one of the largest in the world.

“ESG is coming up more with investors in relation to Aristocrat,” Adrian Lemme, director of retail and gaming research at Citi, said in an interview. “This is where markets are headed, in terms of ESG becoming a bigger part of the investment process. So all companies obviously have to address it.”

Australian pension funds have been among the most engaged of Aristocrat’s investors on environmental, social and governance issues, a spokesperson for the firm said in an emailed reply to questions. The ESG investor day on Dec. 5 will canvass a range of issues with investors and analysts, including compliance with regulations and responsible investing practices.

“Aristocrat strives to lead our industries in some sustainability issues; on other issues we aim to keep pace with peers or make a meaningful contribution,” the spokesperson said.

AustralianSuper has by far the biggest gambling holdings among its peers, according to Bloomberg calculations using data from the fund’s website. The country’s top pension fund has about A$2.7 billion worth of such shares in its default investment option, where members’ savings automatically go unless they choose other strategies.

While the A$300 billion fund has no current plans for divestments from gambling, CIO Mark Delaney concedes that portfolios need to reflect social and community expectations.

“Gambling is a classic ESG issue,” Delaney said in an interview. “It’s one whereby the social appetite and the regulatory environment evolves over time and we need to be forward looking about how we do it.”

Almost 40% of Australian adults gamble at least once a week, a government survey found earlier this year, with almost half considered at some risk of harm. But while climate risk features heavily in investment teams’ discussions, social issues can be trickier to tackle.

Pension funds contacted by Bloomberg pointed to their responsible investment options as a way of members putting their savings toward stocks that are screened from industries like gambling.

“We’ve been engaging with these companies for a while around their social license and around what is responsible gaming practices,” HESTA Chief Investment Officer Sonya Sawtell-Rickson said in an interview earlier this year. “We’re pleased and supportive of the changes that are emerging in terms of trying to limit harm whilst allowing responsible actions.”

Still, many Australian workers don’t know where their retirement savings are invested, either through lack of efforts or because of the pension funds’ own patchy disclosures. While funds are required to publicly disclose their investments, their members often have to wade through spreadsheets or obscure website pages to find them.

Recovered gambling addict Andrew Ientile’s slot machine addiction lead him into bankruptcy, and he’s since managed to rebuild his life. The 34 year-old health services worker was shocked to discover recently that his pension fund held gambling stocks in its default investment option.

“Knowing what I’ve been through and knowing how destructive the gambling industry can be, and how much losses and things you can have in there, it’s disgusting to me,” he said. “It almost seems like they’re using our money for the wrong purpose.”