Your Finance Update- February Summary
20 February 2023
Your Finance Update - February Summary
Positive start to the year - what more is to come?
Over the course of 2022 our message to investors has been simple. Markets are in a period of transition and with transition comes some pain. The rapid shift from record-low interest rates and liquidity-fuelled markets, to one of higher interest rates and central banks shrinking their balance sheets has impacted markets. This has been coupled with the ongoing effects of Covid on economies, notably China and the unexpected conflict in Ukraine. Both events contributing to rising inflation which has been the topic du jour for all of 2022.
What can we expect from markets in 2023?
We should hit peak inflation in 2023. Central banks around the globe have been aggressively raising rates to curb inflation. In Australia, the December CPI figure hit 7.8% with the cash rate target reaching 3.10%. Cyclical indicators have been broadly trending down and we are yet to see the full impact of rate rises on households. We believe that demand will show more material signs of slowing in the second and third quarter of 2023, which should see inflation stabilise.
Mild recession is a possibility
The inverted yield curve is suggesting that a recession is on the cards. Historically, recessions have occurred 12 to 18 months after the yield curve has inverted. While the likelihood of a recession is elevated, the relatively strong labour market is expected to reduce the risk of a deep prolonged recession. We do however expect segments of the economy to be hit harder than others, such as the construction industry, which has already experienced a downturn following rises in interest rates. Conversely Australia’s exposure to materials and the reopening of China from strict Covid lockdowns is expected to benefit things such as iron ore exports.
Company earnings to slow second half of 2023
We are yet to see the full impact on demand of interest rate rises. While the savings ratio has been declining as households increasingly dip into their savings, households are still spending, with travel spending being the big winner. However, our expectation is that we will observe a slowdown in demand in the second half of the year as many household budgets get a jump in their mortgage repayments as their fixed rate loans roll-off and they move towards the higher variable rate. This should see a slowdown in discretionary spending which should show up in company earnings later in the year.
Range trading market
Markets have started 2023 on a positive note. Some of acute issues that adversely impacted markets in 2022 have subsided. Energy prices, which rose sharply following the Russian invasion of Ukraine have fallen with European gas prices falling by over 27% in January alone. Furthermore, the consumer is still buoyant despite higher interest rates.
As 2023 progresses and the impact of rising rates makes its way through the economy and company earnings come under increased pressure, we may see the market pull back. Net-net it is plausible that 2023 may be a relatively flat market characterised by spikes in volatility both to the upside and the downside.
Market Developments during January 2023
The Australian market commenced the year convincingly, with the S&P/ASX 200 Accumulation Index rising by 6.2% and every sector finishing positively apart from the Utilities (-3.0%) sector. The gain represents the best start to the year since the inception of the Index. The Consumer Discretionary (+9.9%) and Materials (+8.9%) sectors led the market, as investor optimism around the future cash rate and inflation trajectory in an Australian and global context buoyed the broader market.
The Utilities sector was the biggest laggard as investors pivoted away from more defensive sectors in favour of more cyclical exposures. The Consumer Discretionary sector performed robustly as companies reported earnings. The Materials sector performed strongly as several commodities continued their recent rally on the back of the China re-opening demand. Further, the volatility in the Australian market was relatively subdued. Broadly speaking, the more ‘growth’ oriented and interest-rate sensitive sectors exhibited solid performance as investors weighed up the potential for central bank policy rate cuts in Australia and other global economies.
Global equities started on a positive note as optimistic views around inflation fed through to possibilities around a reduction in central bank tightening. Emerging markets outperformed developed market counterparts returning 3.8% (MSCI Emerging Markets Index (AUD)) versus a 3.0% gain according to the MSCI World Ex Australia Index (AUD).
Investor confidence was elevated during the month as global macro data surprised to the upside combined with China reopening earlier than expected. This was reflected by the Hang Seng Index and the CSI 300 Index, returning 10.4% and 7.4% respectively (in local currency terms) for the month. In the US, over a third of companies have reported, with earnings in aggregate being 0.6% above consensus and the S&P500 Index posting a monthly return of 6.3% (in local currency terms).
In Germany, the DAX 30 Index reported a gain of 8.7% for the month (in local currency terms) as it continued to benefit from the easing of supply disruptions, a decline in the risk of gas rationing and further fiscal support.
With no RBA meeting in January, there has been a pause on rate hikes, with rates expected to rise once again in February. This led to Australian 2- and 10- year Government bond yields falling by 23bps and 50bps, respectively. The fall in bond yields resulted in almost every fixed income sector being in the green, resulting in the Bloomberg AusBond Composite 0+ Yr Index to return 2.7% over the course of the month. Inflation has now risen to 7.8%, over the past 12 months to December, and CPI rose 1.9% this December quarter according to ABS data.
Subsequently the RBA increased rates at their 7 February meeting by 25 basis points to 3.35 per cent. The December inflation figures were cited as a factor in this increase and the RBA observed that GDP growth, a tight labour market and wages growth are also factors being taken into consideration when making interest rate decisions.
Globally, fixed income markets showed a mixed story, with US markets bracing for another rate hike in the next Federal Reserve Meeting on February 1. US 10-year Bond yields rose 37bps and US 90 Day T-Bill yields rose 30bps. In the United Kingdom, markets also await the return of the BoE meetings in February, with the current January bank rate sitting at 3.50%. Over January, U.K. 2 Year Gilt yields fell 11bps and U.K. 10 Year Gilt yields by 34bps.
REIT’s (listed property securities)
The S&P/ASX 200 A-REIT Accumulation index had a strong start to the calendar year advancing during January, with the index finishing the month 8.1% higher. Global real estate equities (represented by the FTSE EPRA/NAREIT Developed Ex Australia Index (AUD Hedged)) also finished strongly, advancing 8.2% for the month. Australian infrastructure performed well during January, with the S&P/ASX Infrastructure Index TR advancing 1.9% for the month.
The positive start to the year is a welcome sight for REIT investors, as the listed property sector suffered a material decline in 2022. 2022 was the worst-performing year for REITs since the global financial crisis. Capital raising is expected to be a prominent theme in Q1 this year with the significant change in debt markets and cost of capital. In the global REITs market, we have already seen eight capital offering instruments in January, raising a total of $4.1bn in capital, in contrast to the $250m raised in December.
The Australian residential property market experienced a –1.1% change month on month in January represented by Core Logic’s five capital city aggregate. Brisbane (-1.4%), Sydney (-1.2%), Melbourne (-1.1%) and Adelaide (-0.3%) all performed poorly whilst (0%) stayed relatively neutral.
Signing Documents Made Easy with Boyce & DocuSign
27 November 2020
Boyce are excited to have partnered with DocuSign to sign documents online in a quick and easy process.
Some of the benefits are:
- A safe way to sign documents during COVID-19
- A quicker way to sign documents, with most signing processes only taking a few minutes for you to sign on your computer, tablet, or smart phone.
- A more environmentally friendly option that limits the use of paper.
What can be Signed with DocuSign?
You will see your Boyce Team sending Activity Statements, Tax Returns and Financial Statements to you through DocuSign.
A significant amount of ASIC and Company documents can’t be signed due to legal or ASIC requirements. We will only send you documents via Electronic Signing that we are happy for you to sign.
DocuSign requires that each signer has a separate email address and mobile number for the digital signature to be valid. If we only have a shared email address or mobile in our system your accountant may contact you asking if you can provide an alternative to enable DocuSign to be used.
Stay Cyber Safe - MyGovID Potential Phishing Scam Alert
8 October 2020
Phishing is a method of stealing confidential information by sending fraudulent messages to a victim. It is one of the most prevalent scams reported in Australia.
We’ve become aware that there may be a way for criminals to phish your MyGovID credentials by sending you to a fake website.
Please make sure that whenever you log into MyGovID, the URL starts with https://mygovid.gov.au/ as per the below image. Please note the trailing slash as it is very important.
These are sophisticated scams. We urge our customers to be cautious at all times.
If you have clicked on a link or provided your personal information, contact Services Australia on 1800 941 126.
To stay up to date on the latest online threats and how to respond, visit cyber.gov.au.
Xero â€“ Changes to the â€˜Starterâ€™ Subscription
24 September 2020
Xero have announced an exciting change to the ‘Starter’ subscription. This is the entry level plan for Xero and is available for $17.50/month when purchased through Boyce (RRP $25/month).
Xero Starter Plan now includes;
- Send up to 20 sales invoices and quotes (previously limited to 5 per month)
- Enter 5 bills
- Unlimited bank reconciliations (previously limited to 20 per month)
- Payroll for 1 person
- Capture bills and receipts with Hubdoc (limited to 5 bills per month)
This change means that this plan would be ideal for people who;
- Want to start some invoicing to their customers
- Want to keep smaller businesses organised with a cashbook that offers an opportunity to take advantage of most of Xero’s features.
- New businesses that want a cost-effective starting plan that is easy to upgrade as the business grows.
- Want to keep track of their personal income/expenses and be able to flag deductible expenses
â€‹We also have options for Xero plans that are only available through Boyce. See below.
This new package is a great option for any smaller businesses looking to move to Xero or as a downgrade option for any businesses on a larger plan that would be suited to the adjusted ‘Starter’ Plan.
If you would like to take advantage of the new ‘Starter’ plan or discuss other plans with Xero, please feel free to contact your Boyce accountant to work through what suits you best.
Boyce MI - Management Reporting Made Easy
6 August 2020
Earlier this year, we proudly and successfully released our next generation management reporting application Boyce MI (BMI).
BMI was designed to take the guess work out of the monthly reporting process; putting easy to understand information into your hands so you can make better business decisions.
BMI was built from the ground up as a web application that connects with accounting data in the cloud, so you easily connect and access your information from anywhere with a modern web browser.
Benefits of BMI
- Boyce’s unique management reporting system at your fingertips
- Know where your business’s cash flow is and flexibly change your plans to meet demands
- Work on your business, not in your business, by proactively planning your year and then reporting progress against the budget
- Readily adapt to change by creating additional budgets or reforecasts for what-if planning
- Work wherever, whenever. Accessible from a modern web browser over any internet connection
- Fast multi-level reporting (whole of business, enterprise and summary)
- Built in help documentation for step by step guidance
- Receive monthly updates to keep you in the loop with new developments & features
â€‹Features of BMI
- Works with Xero, MYOB AccountRight Live (cloud only) and any accounting system with Excel export
- Import a budget in the Boyce format
- Reforecast - export actuals over your existing budget
- View reports on screen or export to Excel and PDF
BMI is available in a monthly reporting package or to purchase directly.
If you would like more information on how Boyce MI can streamline your reporting process and help you to strengthen data-driven decision making for your business, please speak to your accountant.