Brief Australia: Pressure on the RBA Mounts and more

In this briefing:

1. Pressure on the RBA Mounts
2. New J. Hutton Exploration Report (Week Ending 22/02/19)
3. Continuing Positive Outlook for Last Mile Industrial Real Estate Supports New Financings Globally
4. US Real Yields Fall, and the Fed Wants Higher Inflation

1. Pressure on the RBA Mounts

The pressure is building on the RBA to cut rates as the construction data proves much weaker than expected in the second half of 2018; pointing to sub-trend GDP growth over the year ahead.  The RBA may cling to their outlook for stable rates, for the time being, citing recent strength in the labour market, and hopes of a rebound in infrastructure spending. But they will feel the heat as market commentators bay for their blood if the economy continues to struggle through the year.  The relatively weak AUD appears to be reflecting the heightened concern over the weak housing market, but it remains difficult to short, considering the potential for a US-China trade deal, Chinese policy stimulus, rising confidence that the UK will avoid a cliff-edge hard Brexit, dovish noises from the Fed, and stronger commodity prices and global risk appetite.

2. New J. Hutton Exploration Report (Week Ending 22/02/19)

• Azumah Resources (AZM AU) rated a Speculative BUY
• 99.5m at 2.2g/t Au complements ‘discovery hole’ (75m above) – 93.1m at 2.3g/t Au
• DDHs from current programme targeting down-dip from existing intercepts
• Key drill results expected over next few weeks
• 1Moz Reserve, 2.5Moz Resource
• US$1,77M NPV_5%, 1.6yr payback.
• US$886/oz AISC (all-in sustaining cost)
• Azumah Resources (AZM AU) , Emmerson Resources (ERM AU), Xanadu Mines (XAM AU), Kingston Resources (KSN AU), Oklo Resources (OKU AU), Blackham Resources (BLK AU), Dacian Gold Ltd (DCN AU), De Grey Mining (DEG AU), Austar Gold (AUL AU), Strategic Minerals PLC (SML LN), Asiamet Resources Ltd (ARS LN), Landore Resources Ltd (LND LN)

3. Continuing Positive Outlook for Last Mile Industrial Real Estate Supports New Financings Globally

• We published a series of Insights explaining our positive outlook for the industrial segment of the global Real Estate sector.
• Currently, companies in this segment are capitalizing on strong fundamentals to raise new equity capital. They are using the proceeds from these deals to fund property acquisitions and developments, and to deleverage their balance sheets, thereby setting the stage for continuing growth.
• This trend is especially notable because it is taking place in a range of geographic locations, around the world.

4. US Real Yields Fall, and the Fed Wants Higher Inflation

The surge in Chinese equities, leading a broader rebound in emerging market assets is significant and hard to ignore.  The AUD has significantly lagged the rebound in risk appetite indicators, including copper, other commodity and Asian currencies.  Fears over Australia’s housing market have dominated recent developments, but labour market indicators suggest the RBA will be in no hurry to cut rates.  US real yields have fallen significantly since their peak in November last year and may reflect recent evidence of weaker economic activity.  Prominent Fed members suggest the Fed may be moving to target average inflation, paving the way for lower US rates and a weaker USD outlook.