Hedge Clippings | 16 May 2025

Consensus expectations from a significant majority of economists anticipate a 25 basis point cut next Tuesday when the RBA announces their decision following the new format 2-day board meeting. If the economists are correct - and the market is certainly backing that view - it will bring the cash rate to 3.85%. For example, the CBA is amongst the pack, forecasting a 25 basis point cut, with potential further cuts in August and November, aiming for a year-end rate of 3.35%.

Some analysts, like NAB's chief economist Sally Auld, suggest a more aggressive approach, proposing a 50 basis point cut in May, followed by additional reductions throughout the year, and potentially lowering the rate to 2.85% by December. ANZ has reportedly walked back from their previous call that the RBA would "definitely cut", now seemingly having a bet each way by suggesting there's around a 30% chance they'll stay on hold for at least another month.

As usual, there are arguments both for and against a move: Inflation at 2.4% (12 months to March) is firmly in the RBA's 2-3% target range, although that number remains skewed by government subsidies on electricity prices, which fell 9.6%. The RBA's preferred trimmed mean measure is a tad higher at 2.7%, but still within the band. More recent CPI figures for April aren't due until the week after the RBA meets, but it would be surprising if it kicked up above 3% to spoil Albo and Jim Chalmers' post election party.

Against that, Australia's labour market remains tight, with a notable increase of 89,000 jobs in April and a steady unemployment rate of 4.1%. Such strength could lead to wage pressures, potentially reigniting inflation, and Michele Bullock has previously pointed to this as a risk, preferring to see a number above 4.5%.

The RBA has previously cited "uncertainty" as a significant reason for their reluctance to ease further, or earlier, and while the local political outlook now seems stable, uncertainty definitely persists despite an apparent easing of the tariff tit-for-tat between the US and China in particular. However, it is only an easing from the trade-stopping proposed levels of 145% and 125%, down to a US tariff of 30%, and a reciprocal tariff of 10% from China.

That level of uncertainty may, or may not, impact the RBA's decision-making process, but it remains a major concern for the US itself, where the FED's Jerome Powell is standing firm against both Trump's threats and insults, and a decision on cutting rates from their current 4.25% to 4.50% level.  The market had expected a cut at the FED's June meeting, but this has now been pushed out to July or possibly September. Looking further out, the market is still not convinced US rates will be much below 4% by December, and if Trump's tariffs lead to inflation kicking up (and it seems difficult to imagine why it would not, even at the new lower tariff levels) then maybe Powell's stance will be vindicated.

That leads to another dilemma (or effect) on Australia and the RBA. If NAB's forecast of Australian rates of 2.85% by December is correct, and a worst-case scenario of 4% or more in the US, what does that do to the Aussie dollar?  Meanwhile, while the chances of a recession might seem slim in Australia, the US economy is heading into uncharted Trump-induced waters. Slowing economic activity and consumer confidence in the US may force Powell to cut, leading to two significantly different policy decisions.

In the meantime, next Tuesday afternoon's RBA announcement, due at 2:30 looms large. At 3:30 Michele Bullock will hold her traditional media conference. Hedge Clippings and Australian Fund Monitors have organised a webinar at 4:30 immediately after the Governor finishes her address to discuss the outcome of the meeting and, more importantly, the outlook for both Australia's markets, and the Global economy.

We have assembled three expert fund managers to discuss, debate and share their views. Please register below to join the Zoom webinar, which should last between 30 to 45 minutes and will include a Q&A. Our guest panel of fund managers will be:

• Nick Chaplin, Portfolio Manager, Seed Funds Management - Hybrid Securities, Bonds and Fixed Interest.
• Winston Sammut, Portfolio Manager, Euree Asset Management - Property and Multi-Assets.
• Alex Pollak, CIO and Founder, Loftus Peak Global Disruption Fund.

Each of our expert panel members will bring a different perspective, and we look forward to hearing from them.

Registration is required - please click here or below.

News | Insights | Webinar

Webinar | Impact of Tuesday's RBA rate decision

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Tariffs, Tension and Tech: How Trump's Second Term

is Reshaping Markets

Sage Capital

April 2025

It would be an understatement to say that the world has become a more volatile and uncertain place since Donald Trump moved back into the Oval Office in January. Given that markets don't like uncertainty, it's no surprise that both US and Australian shares have tumbled from their post-inauguration highs.

The celebratory mood of the market - driven by the prospect of tax cuts, deregulation and boom times ahead - has been replaced with fear and uncertainty. Escalating geopolitical tensions, trade wars, and the moving feast that is US tariff policies have cast a shadow over the outlook, raising concerns about a recession.

Among this uncertainty, one thing is becoming very clear - Trump 2.0 will be very different from Trump 1.0. As the US continues to roll out new tariff and economic policies, there is likely to be elevated volatility in the sharemarket, at least in the near term. Given the cadence of announcements from the Trump administration and their potential short-term negative impact on the US and global economy, it's fair to assume the market will remain in a state of flux for a while longer.

The lengths to which Trump will go to achieve his goal of becoming a legacy president are beyond the scope of this article. Opinions vary widely. Some believe there is a method in his madness that may lead to short-term pain but long-term gain, while others view his actions as erratic and misguided.

Regardless of perspective, increased market volatility should present potential attractive buying opportunities for stocks in Australia. The market had been looking very expensive, particularly in sectors such as technology. The sell-off has taken some of the froth out of the market.

Buying opportunities

We believe there may be more downside to come in the short term as markets adjust to the new order, but we are actively watching for buying opportunities. Our focus remains on companies with a clear growth trajectory, strong control over their own destiny, and not overly exposed to tariffs or shifts in consumer sentiment.

One stock we think fits this description is Life360, the family location sharing app. The Life360 app is the most-used social networking app daily in the US after Facebook and WhatsApp, with a rapidly growing user base of 80 million worldwide. Its key competitive advantage lies in its leading location tracking technology, which is well ahead of its competitors, including Apple's Find My Friends.

Life360 has grown revenue by 35 per cent per annum over the past five years as more and more users see value in the increasing functionality of the app and switch from the free version to a paid subscription, or move to higher tier plans. The company is expected to continue growing at 20 per cent or more for the foreseeable future as it continues to penetrate the US, its biggest market, as well as rolling out globally and introducing new products that can monitor the safety of pets and elderly relatives.

Its scalable technology allows the company to grow revenue at minimal extra cost, positioning it well for continued success. It is also harnessing artificial intelligence, not only for innovating the core app but also to enable targeted advertising that provides an additional revenue stream.

With a quality management team including an enthusiastic founder, we believe Life360 can continue to deliver strong earnings growth for many years to come.

Another topic on our minds that is gaining momentum in company discussions - and faster than the word "tariff" - is agentic AI. This is the next step on from generative AI and a concept we see garnering more and more attention this year.

An AI "agent" is more sophisticated than being just a generator of content or a basic chatbot - it can proactively make decisions and execute actions based on real-time data. Autonomous vehicles such as Waymo are powered by agentic AI.

Harnessing it in business processes could produce huge cost savings and productivity gains across a broad range of industries, particularly for those that utilise processes that require multiple repetitive steps and complex decision-making across numerous data sources. While it is early days, we are monitoring its evolution and impact closely.

There's no doubt that the changes in US policies and the rapid evolution of AI are driving elevated uncertainty and volatility. The glass-half-full view is that this will result in some short-term pain for economies and sharemarkets but longer-term gains. Only time will tell.

Funds operated by this manager:

CC Sage Capital Equity Plus Fund, CC Sage Capital Absolute Return Fund

This information is for professional and wholesale investors only and has been prepared by Sage Capital Pty Ltd ACN 632 839 877 AR No. 001276472 ('Sage Capital'). Channel Investment Management Limited ACN 163 234 240 AFSL 439007 ('CIML') is the responsible entity and issuer of units in the CC Sage Capital Equity Plus Fund ARSN 634 148 913 and the CC Sage Capital Absolute Return Fund ARSN 634 149 287 (collectively 'the Funds'). Channel Capital Pty Ltd ACN 162 591 568 AR No. 001274413 ('Channel') provides investment infrastructure services for Sage Capital and is the holding company of CIML. This information is supplied on the following conditions which are expressly accepted and agreed to by each interested party ('Recipient').
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This information contains general financial product advice only and has been prepared without taking into account the objectives, financial situation or needs of any particular person. It is intended solely for wholesale clients (including sophisticated investors) as defined under sections 761G and 761GA of the Corporations Act 2001 (Cth).

The information provided should not be considered personal advice, a recommendation, or an offer to invest in the Funds. Recipients should not rely on this information in making investment decisions. A Recipient should, before making any investment decisions, consider the appropriateness of the information, and seek professional advice.

Neither Sage Capital, Channel, CIML or their representatives and respective employees or officers (collectively, 'the Beneficiaries') make any representation or warranty, express or implied, as to accuracy, reliability or completeness of this information or subsequently provided to the Recipient or its advisers by any of the Beneficiaries, including, without limitation, any historical financial information, the estimates and projections and any other financial information derived there from, and nothing contained in this information is, or shall be relied upon, as a promise or representation, whether as to the past or the future. All investments contain risk. Past performance is not a reliable indicator of future performance.

For further information and before investing, please read the Product Disclosure Statement and Target Market Determination which is available from www.channelcapital.com.au

Is this now an opportunity for china exposed stocks?

Tyndall Asset Management

May 2025

Funds operated by this manager:

Tyndall Australian Share Concentrated Fund, Tyndall Australian Share Income Fund, Tyndall Australian Share Wholesale Fund