Markets
Local:
The ASX200 index fell by -3.79% in February.
Global:
The S&P 500 fell by -1.3% over February.
The Dow Jones Industrial Average also fell by -1.4%.
The Nasdaq Composite continued the downward trend falling by -3.9% in February.
The Russell 2000 was the worst performing, dropping significantly in February by -5.3%.
The pan-European STOXX Europe 600 index gained 3.4%.
Gold:
The price of gold surged as much as 4.4% in February but ended the month 0.8% higher MoM, finishing February at $2,834.60 per ounce in US Dollars.
Iron Ore:
Iron ore price increased slightly over February, finishing the month at US $106.90 per/Mt.
Oil:
Brent crude oil fell 2.9% in February to $74.89 per barrel as of February 24th.
Property
Housing:
CoreLogic’s national Home Value Index posted a 0.3% rise in February, breaking the short and shallow downturn that lasted just three months and dragging the national measure of home values -0.4% lower.
The February rise was subtle, but broad based, with every capital and ‘rest-of-state region except Darwin (-0.1%) and Regional Victoria (flat) recording a monthly rise in values.
CoreLogic’s research director, Tim Lawless, said the improved housing conditions have more to do with improved sentiment than any immediate improvement in borrowing capacity.
“Expectations of lower interest rates, which solidified in February, look to be flowing through to improved buyer sentiment. Along with the modest rise in values, we have also seen an improvement in auction clearance rates, which have risen back to around long-run average levels across the major auction markets”.
Economy
Interest Rates:
For the February 2025 RBA rates decision, the RBA announced a 0.25% rate cut, bringing the official cash rate down to 4.10%. The central bank wants to see that inflation can stay inside its target range of 2-3% for a consistent period before making further cuts. It is also keeping a close eye on the situation in the US and China, as recent policy announcements may start to push inflation back up. For this reason, experts are now predicting the next rate cut could arrive in mid-2025, rather than May 2025, as previously expected.
Retail Sales:
Australian retail turnover rose 0.3% in January 2025. This follows a fall of 0.1% in December 2024 and a rise of 0.7% in November 2024. Robert Ewing, ABS head of business statistics, said: ‘While the pick-up in retail spending since mid-2024 has been boosted by more discretionary spending, this month’s rise is mostly driven by food-related spending.’
Bond Yields:
The yield on the Australian 10-year benchmark bond dropped 10 basis points to 4.27% at month-end.
The US 10-year Government bond yield fell in February to finish the month at 4.24%.
Cryptocurrencies:
The prices of major cryptocurrencies plummeted in February. Bitcoin sank 19.2% in February to $84,709.14 and is now 20.2% off of its all-time high. Ethereum tumbled 29% to $2,305.32, pushing it 52.1% below its all-time high.
Exchange Rate:
The Aussie dollar fell again in February against both the American dollar, at $0.621, and the Euro at $0.598.
Exchange Rate:
The Aussie dollar fell again in February against both the American dollar, at $0.621, and the Euro at $0.598.
Inflation:
Australia: The monthly Consumer Price Index (CPI) indicator rose 2.5% in the 12 months to January 2025. Michelle Marquardt, ABS head of prices statistics, said: “Annual CPI inflation at 2.5% in January was the same as it was in December 2024”. The largest contributors to the annual movement were Food and non-alcoholic beverages (+3.3 per cent), Housing (+2.1 per cent), and Alcohol and tobacco (+6.4 per cent).
USA: The US inflation rate rose to 3.00% in January, reaching this level for the first time since May 2024. Core inflation stayed roughly the same, clocking in at 3.26%. The US Consumer Price Index rose 0.47% month over month, and US Personal Spending contracted for the first time since March 2023.
EU: Euro area annual inflation is expected to be 2.4% in February 2025, down from 2.5% in January according to a flash estimate from Eurostat. Looking at the main components of euro area inflation, services are expected to have the highest annual rate in February (3.7%, compared with 3.9% in January), followed by food, alcohol & tobacco (2.7%, compared with 2.3% in January), non-energy industrial goods (0.6%, compared with 0.5% in January) and energy (0.2%, compared with 1.9% in January).
Consumer Confidence:
The Westpac–Melbourne Institute Consumer Sentiment Index was basically unchanged in February, edging up 0.1% to 92.2 from 92.1 in January. The consumer mood improved materially over the second half of 2024, but the recovery has stalled in the last three months as continued pressures on family finances and a more unsettled global backdrop have weighed against firming expectations of rate cuts domestically.
Employment:
Australia: The seasonally adjusted unemployment rate rose by 0.1 percentage point to 4.1% in January. Bjorn Jarvis, ABS head of labour statistics said: “With employment rising by 44,000 people and the number of unemployed increasing by 23,000 people, the unemployment rate rose to 4.1%”.
USA: Total nonfarm payroll employment rose by 151,000 in February, and the unemployment rate changed little at 4.1%. Employment trended up in health care, financial activities, transportation and warehousing, and social assistance. Federal government employment declined.
Purchasing Managers Index:
The headline seasonally adjusted S&P Global Australia Manufacturing Purchasing Manager’s Index™ (PMI®) posted 50.4 in February, up from 50.2 in January. This signaled a second consecutive improvement in manufacturing sector conditions. Although only marginally above the 50.0 neutral mark, the latest headline index was the highest seen since February 2023. Results above 50 points indicate expansion, with higher results indicating a faster rate of expansion.
US Services PMI:
The seasonally adjusted S&P Global US Services PMI® Index recorded 51.0 in February. Although above the critical 50.0 no-change to signal further growth of the sector, the rate of expansion was modest and the slowest since November 2023. Growth has softened noticeably in 2025 so far compared to the robust rates seen during the second half of last year.
US Global Manufacturing PMI:
The seasonally adjusted S&P Global US Manufacturing Purchasing Managers’ Index™ (PMI®) recorded 52.7 in February, up from 51.2 in January. It was the second successive month that the index has pointed to an improvement in the health of the manufacturing sector, with the rate of growth being the best since June 2022.
Sources: ABS, AFR, AWE, BLS, CoreLogic, Eurostat, IFA, Macquarie MWM Research, RBA, TradingEconomics, UBS, Wealth Data
Comment
Bankers want just one thing from companies – and it’s not value
When the country’s top investment bankers are not finalising deals (which is most of the time, if they’re being honest), they specialise in it.
They take feedback from their institutional equities desk, marry it with trading volumes, prices and multiples, add some spice about a company’s rivals and dish it up to clients daily. That “colour”, as bankers call it, is how they stay useful, get invited to board meetings and make sure they are in contention for the next fee event (M&A deal/capital raising/on-market buyback/anything else).
Bankers’ high-level advice is relatively simple. Listed companies need growth and by growth, they mean earnings growth – that’s increasingly what drives share prices.
Ideally, it is top and bottom-line growth from growing market share, launching new products, and getting into adjacent businesses and synergies. If that’s not there, then try to manufacture growth by “investing” in cost cuts.
We see growth is increasingly important because of structural and cyclical changes in equity markets. Passive funds, momentum, big super – it’s all part of it.
Growth companies’ outperformance is getting larger – the ASX’s large companies with earnings growth have easily outperformed “cheap” or lower-growth value companies on one, three and 10-year bases.
In just the past year, the MSCI Australia Growth Index, which includes large and mid-cap stocks with increasing earnings such as CSL, Macquarie, Aristocrat and Goodman Group, outperformed the MSCI Australia Value Index by 16.2%!
The difference between growth and value over 10 years is 3.4% a year, compounded, according to Macquarie’s equities strategists. What more incentive can a company need to find growth?
The trend is even stronger in the US, where booming technology stocks have swamped the S&P 500. The MSCI USA Growth Index was up 17.2% a year in the past decade, while the equivalent value index was up 9.7%.
While it may be obvious that sustainable growth is always fashionable, where this argument gets interesting is the inverse. What happens to those companies that are low – or no-growth in structurally challenged sectors (media, petrol station, manufacturing), who attract shareholders based on a below-average price-to-earnings multiple and perhaps a steady dividend yield?
How do these companies ever break out of their value shackles and post gains like the growth stocks?
One answer is to wait for the cycle to change – there usually comes a time when investor appetite changes and value outperforms growth (again). But we know a lot of fund managers who waited for this to happen every year for the past seven or eight years and are still waiting. They’re starting to question whether passive funds, super and momentum have changed the market for good.
Take fuel distributor and retailer Ampol, for example. It’s a steady-as-she-goes group with strong market share, decent margins, good balance sheet, solid management and a product that Australians cannot live without. Yet, its shares continually underperform the S&P/ASX 200, and it trades at 17-times forecast profit versus the All Industrials at 21.4-times because investors struggle to see the growth.
Woodside is another example – it has tried to straddle both growth and value investor camps in the past decade, which has left it with a split register. About half its investors want Meg O’Neill’s team to acquire US projects, while the other half would prefer those funds be put to cash returns. The company cannot win.
The hard part is taking the advice and not coming unstuck – just ask Perpetual, Ramsay Health Care or Boral, all of whom tried to get growth via big M&A deals only to find their core businesses were the crown jewels all along.
Sources: Australian Financial Review, Macquarie
The information in this document is general advice only. Before acting on any of the general advice you should consider if it is appropriate for you based on your personal circumstances. Level One Financial Advisers Pty Ltd AFSL 280061.