Interest rate expectations, supermarket enquiries & ASX 200 rebalance – who’s in, who’s out?

Bryce: [00:00:31] Welcome to Equity Mates, a podcast that explores what's possible in the world of investing. If you've just joined us. Welcome. My name is Bryce, and today we're looking at who's in and who's out of the latest ASX rebalance, unpacking the great supermarket debate and checking in on what experts are saying about inflation and REITs. To chat through it. As always, I'm joined by my equity buddy, Ren. How are you? 

Alec: [00:00:53] Bryce, I'm very good. I'm excited for this. Our voices have held up. We've just got to the end of recording the first of two audiobooks we're producing this year, so that's exciting. But that's not all that's exciting. We are going on the road. We're taking Ask an Advisor, our content series, where we get some of Australia's best financial advisors in the room, and we ask them your questions. We're taking that on the road so you can be in the room with them and ask them your questions directly.

Bryce: [00:01:22] That's it. Tickets are selling like Nvidia stock. Is that good? All right. And so make sure you secure yours head to equitymates.com/events to grab a ticket. It's only a matter of weeks away. First one here in Sydney. But as Ren said, hoping to get to some other cities around Australia across the year. We're super pumped. Grab your tickets now. So some quick news to cover before we do get into the ASX rebalance. 

Alec: [00:01:50] Oh no. Did you skip something? 

Bryce: [00:01:52] Well Ren, all you have written down here is Tassie Devils fun facts. So what do you get?

Alec: [00:01:56] So, for the non AFL fans, amongst us to bring you up to speed, the AFL has announced their 19th team, the Tasmania Devils. They already have more than 100,000 members. So it took Collingwood 130 years to build the Tassie Devils. Now the biggest team. It's the biggest team in the AFL by club membership. but that's not a fun fact. So Warner Brothers has the copyright over the Tassie devil because it's like one of their cartoon characters. And so the AFL had to negotiate with Warner Brothers to get the rights to use it. 

Bryce: [00:02:31] No way.

Alec: [00:02:32] And apparently they approached them and Warner Brothers weren't interested. But negotiations got a lot easier when the AFL explained to Warner Brothers that the Tasmanian devil is actually an animal like as a real thing. They thought it just made up some fictitious character back in the day.

Bryce: [00:02:52] Oh my God goodness. 

Alec: [00:02:53] It just struck me as the most American thing. Like some of your key IP but you're so into it. Anyway, that was my fun fact. 

Bryce: [00:03:04] It is phenomenal how so many Tasmanians and I guess I would imagine people here on the mainland as well, have jumped on to become founding members of that club. Kicking off in 2020, I think they have something like over 120,000.

Alec: [00:03:17] Yeah. Population of Tasmania is about half a mil. So they're racking it up. Yeah. It helps. It helps that the membership is $10. Or you can pay $15 if you want. I think you get more stickers in the $15 membership. 

Bryce: [00:03:34] Some quick news Ren. We've had some numbers that have come through just hours before getting into the studio that we want to touch on to paint a picture, for what's going on here in Australia. Firstly, Australian migration numbers soared to a record 518,000. I think it was for last year. 

Alec: [00:03:52] Yeah. So the ABS have just reported this biggest on record. I mean not surprising. We knew this was coming. But again it just highlights. We are having record levels of migration, which is important in one sense to fill up the, post-Covid skills gap that we have. But it is harmful in another sense, I guess, in terms of just the housing shortages are only going to get more acute. Anyway, 

Bryce: [00:04:19] It actually flows into the second number that came out today which was the Australian job jobless rate. It actually fell to 3.7% in February, down from 4.1% in Jan. I think the commentary around it though, is they expect this migration influx from last year to push the number up a little bit over the coming years, whilst the demand for jobs is still there, there's going to just be this mismatch between supply and demand. 

Alec: [00:04:42] My biggest takeaway from this is people who think a in interest rate cut is coming sooner rather than later, these are signals that the economy is holding up. Okay. And it would just tell Michelle Bullock and the reserve Bank there is no need to cut. So, like, there's no burning platform on which we're sitting, we're going to talk about interest rates and what the what economists around the world think happens next in Australia and America a little bit later. So one final quick hit, Reddit shares are going to start trading on Friday. So by the time by the time this is released, Reddit shares will be trading.

Bryce: [00:05:19] Yes. Okay. So I was going to do the closest to pin on whether it'll pop or not.

Alec: [00:05:25] It'll pop. 

Bryce: [00:05:27] 25%. 

Alec: [00:05:28] I think I think they've. Already said the IPO is at the upper end of the range has been interest. So yeah. I'm going to say plus 15% day one. 

Bryce: [00:05:43] Closing. 

Alec: [00:05:44] End of the week flat. So it'll pop and then it'll fall. 

Bryce: [00:05:48] Well, I'm going to have to say it'll finish the week down, but I reckon it'll be 20 plus percent.

Alec: [00:05:55] Initial part. And then I'll finish the way down. Yeah. Okay. That's aggressive. Well, the banks. 

Bryce: [00:05:58] So just sell out, so. Yeah. Anyway, speaking of ups and downs, ins and outs. Ren. We've had a suggestion from a community member, Chris. He wanted to know what was going on with the ASX rebalance and have a bit of a chat about if it affects us as an As investors. So we thought we'd kick off the show with the ASX rebalance. 

Alec: [00:06:20] So for people who are unfamiliar with what it is, all of the stock market indexes the ASX 200, the S&P 500. They track the biggest companies on the market. And every quarter, they, you know, the index providers look at the market and say, who's up, who's down, and then they remake the list. And so every quarter we have companies that have made it into the ASX 200, for example, and companies that have fallen out of the ASX 200. 

Bryce: [00:06:51] How do you make it? 

Alec: [00:06:52] By being one of the 200 biggest companies? 

Bryce: [00:06:54] Yeah, based on its competitiveness. 

Alec: [00:06:55] It's like, you know, you've got.

Bryce: [00:06:57] Like a relegation zone in the APL. 

Alec: [00:06:59] Exactly. Yeah, yeah. And much like the relegation zone in the APL, it is a lucrative thing to be in the top tier, especially the ASX 200, because if you think about it, everyone who owns an ASX 200 and it's at that quarterly rebalance, all of our money is sold out of the companies that have fallen out. They've been relegated. And all the companies that have been promoted into the 200. All these big ETF providers like Vanguard and iShares and Betashares have to go and buy the companies that have just made it into the ASX 200. So let's focus on the ASX 200 because it's really the benchmark in Australia. We also have companies that made it into the ASX 20. Congratulations, QBA. Not as exciting. So tell me about the 200. 

Bryce: [00:07:46] So the 200 and this was as, this was kicked into effect as of the close of trade on the 18th of March. So this is now live. Just to put some context to this, the largest company in the ASX 200 is BHP, with a $221 billion market cap. The smallest company is IPh, which is like an IP holdings company. I'm pretty sure about Australasia. It only has a market cap of $1.5 billion. So that gives you an idea of the spread between market caps, between the number one and the 200 companies. And there are a huge amount of companies fighting for that sort of $1.5 billion mark. So who's made it in? Who's sitting there going, great, we're in the top 200. The first one is Audinate AD8 is the ticker, a company that we've heard a fair bit about over our journey at Equity Mates. They specialise in developing technologies for AV networking. I think one of their main products is sending video and audio audio through Ethernet cables. It's called Dante or something like that. It's up 158% over the last 12 months. So has been gaining market cap and is now in the top 200. The second is a company called Red 5. They're an Australian gold producer. They're up 140% in the last 12 months. Siteminder is another one up 75% in the last 12 months. There is a huge commerce platform for hotels, helping with everything from distribution, marketing, bookings just really help hotels drive revenue, I guess. And then finally Stanmore Resources. They're flat, but they had risen sort of 70% from their low, have cooled off a bit this year, but they're in the 200. There are resources companies.

Alec: [00:09:26] Coal. Coal. Yeah. So we've got a tech company in all tonight. We've got two tech companies with SiteMinder as well, and then two mining companies, gold and coal. Now Audinate we spoke. It's one of my biggest regrets when we were doing our daily TV show back in the day. We spoke about Audinate all the time. All the time. Never bought it. 

Bryce: [00:09:47] Never bought. Damn it. 

Alec: [00:09:49] And then, site miner. We've also spoken a lot about it, especially with Paul Wilson from Bailador. I own a little, so I guess I've written some of this Siteminder rise but not a heap. Another one where it was like if we just listened to what we spoke about on the show a bit more. 

Bryce: [00:10:07] No comment. 

Alec: [00:10:09] All right, so if every company that is celebrating there is a company that is lamenting their fortunes. 

Bryce: [00:10:15] Yes, there are. So we've had those that have been chopped from the 200. Chalice mining fell 82% in the last 12 months. They're involved in nickel copper and gold. Core lithium has gone down 80% in the last 12 months. Obviously it's in the name. They're involved in lithium. Sayona mining as well. They're involved in lithium down 81% in the last two months. . And Weebit nano dropped 47% in the last 12 months. They develop Ram technology for the semiconductor industry. Gone

Alec: [00:10:48] Okay. There you go.

Bryce: [00:10:50] Yeah. So these companies are all in that relegation zone. A lot of the ones that are in are really sitting around that 1.5, $1.8 billion market cap. The name of the game from this point is to try and sustain that growth. So you stay in the top 200 and keep climbing because as you said, Ren, it is very rewarding for all investors. If you can, you can get in that top 200.

Alec: [00:11:11] Yeah it is. All right Bryce. Well this is going to potentially be a fiery segment especially from you. I'm thinking this might be the segment that gets us cancelled.

Bryce: [00:11:23] Great. Any payoffs? Good. Yeah. 

Alec: [00:11:26] We wanted to touch on the great supermarket debate. Now Coles and Woolworths together they own about 60-65% of the Australian grocery retail landscape. They are the duopoly. 

Bryce: [00:11:39] Yeah a fair ownership. 

Alec: [00:11:41] Oh, here we go. And the reason they've been obviously in the news about their margins Brad Banducci spat the dummy. But the enquiries are about to start. And what surprised me was the sheer number of inquiries into these two supermarket giants. So you ready? 

Bryce: [00:12:05] I am ready.

Alec: [00:12:05] Firstly there is an essay inquiry into supermarket practices. Secondly, the Greens led a federal Senate inquiry into supermarket practices. Thirdly, a Craig Emerson led review of the Food and Grocery Code of Conduct for a federal competition policy review led by Kerry Short five, another Greens initiated Victorian parliamentary inquiry into food security. Six would you believe it? A grain claims Greenslade South Australian parliamentary inquiry into grocery pricing. Seven, A Labour led federal inquiry into economic dynamism and competition. And, you know, the competition's going to focus on the supermarkets. Number eight, a Liberal led Senate inquiry on cost of living. Again, you know, it's going to focus on the supermarkets. And then finally, number nine, a Queensland government backed inquiry into supermarket pricing. So my first question, Bryce. 

Bryce: [00:12:59] Inefficiency in government comes together.

Alec: [00:13:02] Do you have enough inquiry together? 

Bryce: [00:13:05] The amount of taxpayer money being wasted on this guys. 

Alec: [00:13:09] Well, some some say wasted, some say 

Bryce: [00:13:12] I saw in the paper the other day about the law, the the lawyers that these, these supermarkets bring in to defend all of this stuff and essentially continuously bait the I say is what I took out of it. So one of the cases now acting for, I think Google or Meta in this whole. 

Alec: [00:13:30] Differently, we're talking about supermarkets.

Bryce: [00:13:31] Yeah, I know it's one of the, one of the lawyers that these guys used to bring in is on like 30 grand a day.

Alec: [00:13:37] Yeah, yeah, yeah, it's pretty good. Yeah. This is the episode where Bryce discovered high prices make a lot of money. Well, no, but I think that's a good segway, because what I saw in the paper and what I thought was quite interesting is it's not just lawyers that make a muzzle from these inquiries. It's also political staffers, because a lot of them then go to the lobbying firms or go in-house at a lot of these big companies. And I saw that Woolworths has got a, let's say, a strategic hire to help them through this period. They've hired Anthony Albanese's, former chief of staff. He was Elbow's chief of staff, during the Rudd Guillard. Rudd Years when they were in power. And now he's gone to Woollies to help them through this period. He's just picking up the phone and calling his mate. In the world of political office and where they end up. But that's not what we're here to talk about. We're here to talk about the business side of it. Yeah. Because, I mean, look, Australian supermarkets do have the best margins in the world. There's no denying it. We pulled these numbers Oh yeah. Sorry for retail support for very low margin grocery retailers. Yeah, yeah, yeah, that is an important clarification. These numbers came from the AFR. So Ebit, earnings before interest and tax in the six months to December. woollies 6.1%. Coles, 4.8%. Company for the people. Oh sorry, Woollies on Woollies on food sales 6.1%. Coles 4.8%. In comparison from the AFR in the UK, Tesco and Sainsbury's struggle to crack 3%. France's Carrefour 2%. Kroger in the US mid threes Walmart around 5%. So yeah you know 

Bryce: [00:15:40] Walmart Higher than Coles. What's everyone complaining about. Hey I shouldn't be laughing about this. It is somewhat of a serious matter. 

Alec: [00:15:48] It's very serious. Yeah. Yeah I mean. 

Bryce: [00:15:51] It's not going to change.

Alec: [00:15:53] No. Well there's, there's pushes to give the triple say powers to break up the duopoly 

Bryce: [00:16:00] But like, what would that actually mean though. Like you split Metro from like get rid of the e-commerce business, sell off like. 

Alec: [00:16:07] Or it could be like what? 

Bryce: [00:16:09] It's not, it's not going to allow some third party to come in and build 800 competing retail stores around Australia.

Alec: [00:16:17] What it could be is more what the supermarket landscape looked like in the 80s, which was a lot more state based. 

Bryce: [00:16:24] Oh yeah. 

Alec: [00:16:25] You know, like Woollies bought Franklins to get a big presence in, I think, New South Wales in New Zealand. And then like Coles was stronger in Vic and didn't have a lot of presence in other states. And there's been a lot of consolidation in the supermarket sector. 

Bryce: [00:16:38] Yeah, it's a challenge. It's a challenge that I don't know if all of these nine, nine inquiries that you read out of Bob's like what it's going to amount to. But yeah.

Alec: [00:16:48] So not everyone believes that the supermarkets should be the focus of all of this. If not, you're not alone on an island. And I actually wanted to. I thought you would be more critical of the supermarket. So I wanted to bring these to you and get your reaction. But I feel like you're just going to agree with them. So John Kehoe, the AFR economics editor, said supermarkets are not profit gouging. Less than $3 of every $100 spent goes to profit, which is fair. Ben Gilbert, the head of equity research at Jarden. He believes that higher margins are justified by Australian supermarkets lower return on invested capital. Now, due to the nature of Australia and in particular our geography, we are just an expensive market to operate in relative to the UK and France and even America. Ben's number based, on Ben's numbers. Australian supermarkets spend 3.3% of their sales on capital expenditure, while offshore supermarkets spend between 1.8 and 2.7%, and the more like you have to spend each year to sustain your business and sustain your sales. Investors want to see a return on that. And so, you know, Ben's saying that the higher margins are justified by the low return on invested capital and the higher capital intensity of these Australian supermarkets. Do you think that argument is going to wash? 

Bryce: [00:18:22] No. I think I don't know, I think that a lot of what the supermarkets say is not going to be is going to be argued through all of these. I think I think genuinely, from my point of view, the supermarkets do have a leg to stand on. Like, they're not they're not in most part just get price gouging and those sorts of things. There's probably small a handful of instances you could point to where there's been inappropriate behaviour in buying teams or those sorts of things, but like by and large, just looking at the numbers like they're not, I think like swimming in profit. 

Alec: [00:18:57] Yeah, I think like so Coles gross margin went from like 24% pre-COVID to like 26% post-Covid. I read that somewhere. So like, you know, there's been a slight uptick. But that's not what people are reacting to. People are reacting to the high cost of groceries. And at the same time, on the other side, the supply, like smaller suppliers, are feeling that they're being screwed. And so like the only answer is, well, who's in the middle of that transaction. But yeah, you're right. The numbers don't really bear it out. But it's not going to stop. So, one final, piece of information I wanted to bring to the table. Speaking of supplies, feeling like they're being squeezed. Fraser forwarded us an email, to ask at equity my scone, which I thought was really interesting. And I feel like this is kind of. This will be the direction where all these enquiries end. This is my bold prediction. Or not so bold prediction. I'm going to say the government are going to feel like they have to do something. There's too much political hate to do. Nothing. The more extreme measures nationalise the food supply chain or break up Coles and Woollies. I don't think they're going to fly.and I feel like the middle ground is going to be some extra powers or some pressure on like areas of business practice and business operations. And one where suppliers always push quite hard is payment terms. 

Bryce: [00:20:25] Yes. 

Alec: [00:20:26] And essentially Coles and Woolworths can operate. With negative working capital. Like if you think of how no business works, you buy something from a supplier and then you sell it to your customer. And so you need working capital when you buy it from a supplier before you sell it to a customer. Whereas a lot of what Coles and woollies have, longer payment terms, you know, maybe, I don't know, 30, 60 day payment terms. I actually don't know how long the average payment terms are, but they're long enough that oftentimes Coles will be able to move that product through the network, sell it to the retail customer before they have to pay the supplier. And that means suppliers have to wait a long time to get paid, but they have to pay their workers. Pick the freight. Oh, yeah. Yeah, man. The manufacturing facility, you know, that's going to come up and there'll be a lot of stories from suppliers that I think picked up in the news. 

Bryce: [00:21:17] As in long in the short of it put a bit more pressure or rigour or legislation or some frameworks around, making sure that these big businesses pay when they should. 

Alec: [00:21:26] Yeah, yeah. Now this analysis reckons and, we haven't run the numbers, we're just writing it. So they believe that if Coles agreed to pay suppliers on a seven day payments terms basis, they would cost them an additional $410 million a year. If they needed to borrow that money at 8%. And that would reduce their net profit before tax from about 1.5 billion to about a billion. For Woollies, the estimate is it would if they were borrowing the additional money they needed for that working capital. At 8%, it would cost them an additional 540 million, which would reduce their profit to just below 2 billion. What do you think about that? 

Bryce: [00:22:08] I mean, I actually don't mind this idea. As a small business owner, cash flow is king. And yeah it'll hurt them that like I've also been on the other end of this where, you know, we've been buying equipment and all that sort of stuff through Woollies. And it genuinely does make an impact to these small supplies, regardless of if it's fresh fruit or whatever. Like, you know, it will make a difference. So.

Alec: [00:22:32] Now we can't, we're not going to sit here and write out through all the maths. But what we will do is we'll share this, article in the Facebook discussion group if people want to read the whole thing. So head over there. The link will be in the show notes.

Bryce: [00:22:46] Love it. All right. Well we're going to take a very quick break. And then on the other side we're going to have a look at what the experts are saying about inflation and where interest rates go next. We'll be right back. Welcome back to equity mates. So Ren, inflation and interest rates are still I wouldn't say dominating headlines but they're still obviously making headlines. 

Alec: [00:23:09] Yeah far less headlines when nothing's happening. Yeah. 

Alec: [00:23:13] Then we're going to just keep things on hold and we think they'll stay on hold for a while. Not as rage baity as another rise. 

Bryce: [00:23:24] So we're going to have, we're going to have a look at what some of the experts are saying about, interest rates and, about inflation, and particularly where interest rates are going to go over the next 12 months here in Australia, America, the UK and Japan. So let's start here in Australia, where the interest rate is currently 4.35%. It was paused at the latest RBA meeting and the inflation rate as of January is 3.4%. 

Alec: [00:23:50] So close.

Bryce: [00:23:53] So close. To those that have just joined us. Welcome. When we say so close, the RBA set their band for target inflation to between 2 and 3%, so 3.4% we are almost there. Data is showing that the economy is slowing down. GDP growth was slow in December. The jobs market is resilient as we spoke about slightly higher wages growth and inflation is chilling out a bit. Although the services sector is still very sticky. And that's the hard part. 

Alec: [00:24:18] Like wage wage growth in the service.

Bryce: [00:24:20] So they say services. The easiest way to think about it is everything that is like an experience. Nothing that's like tangible everything from rent blah blah blah. 

Alec: [00:24:28] No understand what services are. 

Bryce: [00:24:29] I'm just telling people that  

Alec: [00:24:31] But when you say it's still very sticky. Oh, you mean like people are still spending in that sector? Yeah. Yeah. Okay. Yeah, yeah, yeah. Okay. So we found a poll from Reuters. They polled 40 economists between the 11th and the 14th of March. So the important thing about that date is it's before the latest RBA meeting was held, all 40 economists predicted the RBA would hold it at that meeting. So all 40 were correct because they did. But here's what they're predicting from the no economist of that 40 predicted the next move would be up. They all think the next move is going to be down. Michelle Bullock has said something quite similar at her press conference. You were very excited about Michelle Bullocks doing press conferences. The balance of probabilities were going down. We're not going up. So that's good for a lot of people, for home owners and everyone else. But then the question is when are we going to go down? So views from these 40 economists were divided with no majority for any one meeting. The strongest minority was around November. Now that's important because that's different to what the market thinks. Interest rate futures are pricing in a 25 basis point cut by the end of September. So the market thinks it will see a cut before those economists do. Now, specifically, from the poll, 13 thought November would be the cut to June 8th. August for September 5th said February 2025. So there's a meaningful number of economists that think no cuts in this year and will be next year. A slight majority will say two cuts by the end of the year. 22 out of 40. Another 12 thinks just one cut. And the remaining six said rates would hold. Stay on hold for the rest of the year. And then there would be a cut next year. 

Bryce: [00:26:20] And Bryce's bold prediction that we'll actually see a rise in this. 

Alec: [00:26:23] Year. Oh. Did you make that prediction? How are you feeling about that?

Bryce: [00:26:26] It's not possible. It's possible. They'll get to the last model in a moment. Let's have a look at what's going on in America. 

Alec: [00:26:33] So before you do I just want to make one note from that last, start there. None of the 40 economists thought more than two, 22 thought two, 12 thought one sixth thought none. So just when you're thinking about where the world is going to go, some people at one stage are saying six rate cuts this year. 

Bryce: [00:26:52] It's always good to look at these and and looking at previous predictions from these guys. 

Alec: [00:26:59] That's a pretty good segment. That's it. But we could just drag random predictions from you. 

Bryce: [00:27:04] But it's wrong. Anyway, let's move to America where the interest rate is 5.33%. So almost 4% higher than here in Australia. The inflation rate is 3.2%. It's actually up slightly from the 3.1% in Jan. But yeah, very close to the band that the fed sets as well. Between that two and 3%.

Alec: [00:27:23] So The Ft, Financial Times and Chicago Booth school, the business school in Chicago. They do a poll of academic economists similar to the Reuters one we're just talking about, for Australia. So in this FT Chicago booth poll, more than two thirds of the economists surveyed think the fed will make two or fewer cuts this year, as it struggles, as you mentioned earlier, to complete the last mile of its battle with inflation. So just like to pause there, two or fewer, both in Australia and in America seems to be more and more the economic consensus. 

Bryce: [00:27:58] Pretty sure the markets at the start of the year priced in. Six rate cuts in the US. 

Alec: [00:28:02] I literally said that two minutes ago. But yeah, it's crazy how quickly expectations have changed. And this is what we were saying last year, that inflation is going to be a little bit harder to moderate that last little bit.

Bryce: [00:28:17] But I just think it's ridiculous that they priced in six where the fed themselves said like it's going to be up to three. 

Alec: [00:28:24] Oh you think it's ridiculous that the market is overly optimistic. So we've been doing this for seven years now. I think that's something that, you know, that a lot of investors will live on hoping. 

Bryce: [00:28:37] Yes. 

Alec: [00:28:39] All right. A couple more points from this FTA Chicago booth survey. So the most popular response from the economists over in the States is that the timing for the first cut in the US will be July, between July and September. So that's going to be earlier than what is predicted in Australia. So that's interesting. I believe it's interesting. And again, much like what we say in Australia, we say in America, financial markets think that cut will happen sooner than academic economists. Financial markets think the first cut will happen in June or July, whereas the economists were saying between July and September. And investors in the markets also think three rate cuts will happen this year. Whereas as we said earlier, these academic economists don't think they'll be more than two. So if you feel like the market is in some ways getting ahead of the economy, I mean, this is why because the expectations are different. 

Bryce: [00:29:41] I think overnight the fed, released their voting. You know, how like this 19 on the board or whatever, they all kind of put a point where they think when the rates will start changing. Nine of 19 are still suggesting that it's going to be cut from mid-year. But that's down now. I think there was a majority. So yeah, even the fed is starting to cool their jets a bit. I just want to quickly touch on the last mile. If you've been reading the headlines, you may have seen this pop up a little bit. It refers to this period that these central banks are in where they're so close to their target band. You may think that it hangs if we've brought it down from 9% to 3.2%, it must be easy to get into that band. But this is the hardest part because we're now facing the most difficult, challenging parts of the inflationary environment. Those parts that are regardless of what you do with interest rates, they're very sticky. And as we said, housing for, for example, is one that continues just to be inflationary services, wage growth. So we are close, but it is a bit of a battle. 

Alec: [00:30:41] I imagine service is also is a lot hotter as well because like it's so tied to labour. Like if you think about what you're paying for with services like the majority of that money is Labour. Whereas with goods it's things that, you know, maybe are a little bit more economically sensitive. You know, like we've seen rates of shipping come well down and stuff like that, fuel and manufacturing and all that stuff. Whereas services are literally like, I'm paying someone to do something, so hard to convince people to do the same thing for less money. When the unemployment rate is so low and ticking low. Absolutely.

Bryce: [00:31:20] So just to close out, over in the UK, interest rate is 5.25% and inflation is now 3.4%. That's the lowest pace of inflation since 2021. They were battling there for a moment, one of the highest in developed countries. So good to say that's back down. And in Japan, their interest rate is now 0 to 0.1%. Yes, you heard me right. The inflation rate is 2.2% so nicely in that band. But why are we talking about this? This is the first time that they've raised interest rates in 17 years. It was actually a negative interest rate before they raised it to zero.

Alec: [00:32:00] Yeah, yeah. It's exciting. I just want to go back to the UK and just make a note. There's a real double edged sword here, because for all of the excitement that they're getting back into the target band, it's also the UK economy. It doesn't not look. Right. And so falling inflation is great until it's terrible. Yeah. And then it's a sign that your economy is not doing well. Yeah. But anyway Japan on the other hand, really exciting because yeah. Negative interest rate. 

Bryce: [00:32:29] They've wanted inflation.

Bryce: [00:32:30] Yeah, yeah. 

Bryce: [00:32:30] You've been battling.

Alec: [00:32:31] With the Bank of Japan, owns like 70% of Japan's ETF market because they've been trying to stimulate so much. They've got nothing left to buy. 

Bryce: [00:32:39] Yeah I think they've released and I think they've pulled back on that buying now as well. So yeah good to say, But yeah first time in 17 years. 

Alec: [00:32:46] Yeah. So I think that brings us to the end of a pretty jam packed episode. There's so much going on. Will obviously be watching the ASX rebalance and what happens in a quarter. We'll be watching these supermarkets, if Bryce doesn't Get us cancelled first. And obviously inflation and interest rates are going to be a big focus. So join the conversation in the Facebook discussion group. Join the conversation live at our Ask an Advisor event. 

Bryce: [00:33:11] We'll pick it up next episode.