Macquarie downgrades the REITs + The "sticky" side of inflation

The Morning Wrap

Livewire Markets

Welcome to Charts and Caffeine - Livewire's pre-market open news and analysis wrap. We'll get you across the overnight session and share our best insights to get you better set for the investing day ahead.




Source: Yahoo Finance


Source: Forex Factory

The top item to watch for local investors is the RBA's meeting minutes. Last month, investor interest was piqued with the following line:

Members acknowledged that the arguments were finely balanced. They concluded, though, that the case to increase the cash rate by 25 basis points at the present meeting was the stronger one. 

Given the Reserve Bank didn't backflip after the late October inflation print, all eyes are now on whether they stick to their convictions or if they keep the vague language around future hikes. 


Source: Macrobond Financial

Coming off last Friday's US inflation report, assets rallied around the world as they had just seen the end of inflation and the beginning of Carnival. But the bad news for those hoping last week's rally will stick will need to consider this chart. 

The chart, hot off the presses from Macrobond's team, suggests "sticky" factors (i.e. services inflation) have a history of not coming down as soon as we'd all like them to. While goods inflation is petering off, services inflation continues to climb. If we've turned the corner, first we need to make sure that we've turned the corner on both parts of the global inflation story.


"Now, nearly all of the countries in the Oxford Economics database are expected to experience a slowdown next year, marking the most widespread deceleration in housing price growth since at least 2000. More than half are likely to register an outright price contraction — something last seen in 2009."  

The Financial Times has written an outstanding deep dive into the global housing market and how far prices will likely fall around the world. Indeed, housing activity has slowed dramatically in the US as the benchmark mortgage rates top multi-decade highs. In Canada's financial capital, single family home and apartment sales have crashed. And China's story is also well-known given the defaults from property developers.

For a deep dive into the Australian story, Signal or Noise is out today with its property edition:

Signal or Noise: When will Australia's property plunge end?


Macquarie's outlook for the REITs sector is in focus today, given it's downgraded most of the sector's earnings profiles. As is the case with residential prices, interest rates aren't good for yields or earnings in the commercial property space. Here is the line from the analysts:

In our view, business models will need to adjust (e.g., funding of development pipelines is difficult, additional asset sales to reduce leverage to more sustainable levels or altering funds management models). We think this will allow for better-capitalised groups to outperform in such an environment.

As a result, three REITs are getting the downgrade treatment - LendLease (ASX: LLC), Centuria Industrial (ASX: CIP), and Abacus Property (ASX: ABP). All three are now neutral-rated instead of an outperform. 

Two more REITs are not even able to hang on to their respective neutral ratings and are now underperform. They are National Storage (ASX: NSR) and Scentre Group (ASX: SCG).

But as is with so many of these broker notes, there is occasionally one glimmer of hope. There has been one REIT given the upgrade treatment. Dexus Industrial (ASX: DXI) is now an outperform instead of a neutral, thanks in large part to a superior balance sheet. 

Hans Lee wrote today's report.


If you've enjoyed this edition, hit follow on this profile to know when we post new content and click the like button so we know what you enjoy reading.

If you have a chart and/or a stat that you would like to see featured in a future edition of the newsletter, drop us a note at

Livewire gives readers access to information and educational content provided by financial services professionals and companies (“Livewire Contributors”). Livewire does not operate under an Australian financial services licence and relies on the exemption available under section 911A(2)(eb) of the Corporations Act 2001 (Cth) in respect of any advice given. Any advice on this site is general in nature and does not take into consideration your objectives, financial situation or needs. Before making a decision please consider these and any relevant Product Disclosure Statement. Livewire has commercial relationships with some Livewire Contributors.

6 stocks mentioned

1 contributor mentioned

The Morning Wrap
Markets Wrap
Livewire Markets

Australia's most comprehensive markets wrap is back for 2023, with a fresh look and a new emphasis on getting you and your money ahead of the curve. Available each weekday morning at 8:30am AEDT. Written by Chris Conway, Kerry Sun, and Hans Lee.

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.