The Big Picture
Strong Middle East oil flows send oil prices and yields downwards. Middle Eastern oil flows hit a six-month high despite strikes on Saudi Arabia’s East-West pipeline. Oil prices fell back below US$100, and the US 10-year treasury yield fell back below 5%. Tech-heavy equity indices also rallied: The Nasdaq rose 2.8% to a new all-time high, Korea’s Kospi opened up 2.3%, Japan’s Nikkei 225 rose 1.4%, and the Philadelphia Semiconductor Index rose 4.9%. (FT)
ASIC threatens legal action against dodgy private credit firms. The regulator says the $200 billion Australian private credit industry “tried to run before it could walk” and is ripe with fee gouging and misleading valuations. ASIC is launching probes into the industry following the Bathla collapse and says it will sue lenders it believes are inflating their valuations. (AFR)
Victoria bans data centres in residential areas. The state released its new data centre plan, which also bans data centres near schools and requires them to source their own renewable energy. Developers will also pay into a local investment fund to help build local public infrastructure. (Guardian)
US oil inventories fall to 44-year low. Despite increased flows out of the Middle East, the US Strategic Petroleum Reserve fell to 285 million barrels, its lowest point since 1982. The US government appears unwilling to use Reserve to shield Americans from high gas and diesel prices, which hit record highs this week. (Reuters)
ASX launches bond benchmark as Aussie debt market booms. The Australian exchange track the cost of borrowing money against government bonds, called a repurchase or repo rate. This brings the Australian market into line with other major fixed income markets. The Australian repo market has grown by 75% in the past five years to over $400 billion as Australia becomes a popular destination for international fixed income investors. (AFR)
Companies in the news
Meta’s Muse shines in debut. Meta’s new AI personal assistant, Muse, became the most downloaded free app on the Apple store. The agent can reportedly order groceries, plan social events and more. Muse is a major piece of Meta’s AI strategy, and its success has investors repricing Meta as an AI leader. Meta’s stock jumped 11% on the day. (FT)
Paramount settles lawsuits to clear way for Warner Bros merger. The merger was blocked when 12 states sued over the $110 billion merger, claiming it would “extinguish competition” in Hollywood. As part of the deal, news networks CBS and CNN will maintain independent editorial boards. Paramount owner David Ellison said he was grateful for a resolution, which he says is the final barrier to the merger. (Guardian)
SoftBank launches massive junk debt deal for OpenAI investment. The Japanese tech-focused investment firm will borrow over US$11 billion to fund some of its US$64 billion in investment commitments to OpenAI. Initial discussions indicate the bonds will offer yields between 9% and 10%, firmly within junk bond status, as lenders demand high returns for the risk of heavy AI debt loads. (FT)
Australian space startup HEO raises $37m in Series B. The company, which arose from UNSW Founders in 2017, uses satellites with cameras and sensors to monitor other satellites and has attracted customers like the US National Reconnaissance Department and Australia’s Department of Defence. Australia’s National Reconstruction Fund contributed $10 million. (Axios | Startup Daily)
Innovaero joins Aussie drone boom with $40m IPO. Following in the footsteps of Codan and DroneShield, the attack drone firm joins the publicly-listed ranks of an increasingly crowded Australian drone industry. The IPO was subdued as the stock ended the day at $0.49, one cent below its IPO price of $0.50. (Nightly)
Volkswagen kicked off European blue-chip index. The Euro Stoxx 50 has removed the German automaker from the index. Volkswagen’s stock has fallen heavily as heavy pressure from Chinese automakers has been exacerbated by a €10 billion writedown and restructuring costs due to its stake in Porsche. The restructuring could result in up to 100,000 layoffs. (FT)
Trump asks Ukraine to stop striking Russian refineries as fuel crisis deepens
With global diesel prices hitting record highs in the lead-up to crucial midterm elections, Trump urged Ukrainian president Volodymyr Zelenskyy to stop striking Russian refineries so they could continue to pump diesel into global markets.
Ukraine, which has been fighting an existential war for nearly four years, has been striking Russian refineries in an effort to slow down the Russian war machine, which primarily runs on domestically-produced fuels. Now President Zelenskyy faces a tough choice: Slow down the Russian invasion or help keep diesel prices down. (FT)
Ask An Adviser: What to buy in a dip
Financial adviser Dylan Pargiter-Green from Bold Wealth had a simple answer to our question about what to buy in a market downturn: Nothing changes.
If markets fell 20% tomorrow, what would you tell clients to buy?
Dylan: Whenever markets take a significant downward move, the advice is the same. Don't panic! Markets go up and they go down, but mostly they go up.
The early stage accumulator, who is dollar cost averaging their savings in at a regular frequency, I'd say keep it up. Stay strong to your strategy. If they've got an ability to throw some caution to the wind, it's a good time to buy.
The middle stage accumulator, perhaps at this stage there is a larger capital pool and perhaps some dry powder in the bank. It could be a good time to rebalance or take some capital gains or losses. Likely these clients have a decade at least ahead of them, so hold steady, don't panic.
Retiree and pre-retiree clients are different however. This is a moment of stress, but the loss is only crystallised when we sell. In these cases, we look to draw from a non-market asset for regular income, whilst giving the market assets the ability to recover.
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