We are ending September with none other than a rate hike. We knew this, you knew this, the market knew this. Let’s talk about it.
Rates were hiked 25 basis points to 4.6% amid a housing crisis. This is a lose-lose for everyone; people cannot borrow as much, reducing the housing prices but also reducing the amount of properties available purchased. This also keeps prospective buyers in the rental market, thus increasing rent prices. Among an already slowing Australian share market, this hike will provide even less liquidity for smaller cap and growth stocks.
Brent crude climbed to US$107 a barrel as Trump added fuel to the fire, and treasury yields surged. The 10 year pushed above 5%, while investors increasingly priced in further Federal Reserve tightening. Strong US and European business activity, rising input costs and expensive oil all reinforced the idea that interest rates may need to stay higher.
Then another problem appeared: there is a lot of debt for investors to absorb.
A US$70 billion five-year Treasury auction attracted weak demand this month. Think about what that means. The US government is asking investors to lend it money, but investors are saying: at this price, and with inflation and rates where they are, we want a better return.
And then, Japan raised rates as well. Their decades of ultra low rates ended with Japanese yields rising sharply. Ultra-long Japanese bonds are offering yields above 4%, making domestic assets significantly more competitive than they once were.
Japanese investors have not rushed home all at once, but the incentive is changing. If Japanese capital no longer needs to travel overseas to find yield, one of the world's major sources of demand for foreign bonds becomes less dependable.
Which brings us to gold.
You would think that, with an ongoing war, oil above US$100 and inflation still hanging around, investors would be rushing towards it. Instead, gold fell to a seven-week low before recovering slightly to around US$4,143 an ounce. The reason, ironically, comes back to bonds.
Gold does not pay you anything for holding it. Bonds do. When government debt suddenly offers yields around 5%, the opportunity cost of sitting on gold becomes much higher. Add a stronger US dollar and expectations of further Federal Reserve hikes, and even geopolitical uncertainty has struggled to offset the pressure.
So we end up with a strange chain of events:
War pushes oil higher
→
Oil adds to inflation
→
Inflation pushes rates and bond yields higher
→
Higher yields make gold less attractive
And while households are being told to spend less, governments are paying more to borrow and investors are suddenly being offered attractive returns on safer assets, one part of the market seems to have missed the memo entirely: AI.
September has been full of companies spending extraordinary amounts of money to secure their position in the AI cycle.
Nvidia agreed to buy Hugging Face for almost US$13 billion, moving further beyond chips and into the developer and open-model ecosystem. AMD followed with an US$8.2 billion acquisition of World Labs, expanding into spatial intelligence and physical AI.
Then there is Anthropic. Its IPO prospectus revealed plans for more than US$500 billion of AI infrastructure spending over the coming decade, even as the company prepares to test how much public investors are actually willing to pay for exposure to the AI boom.
That is what I find most interesting about September. And that makes this a good place for our first stock spotlight: Stakk (ASX: SKK).
SKK sits within the supplier layer of the AI ecosystem. Its technology is used across digital identity, document intelligence, verification and fraud prevention, including by businesses operating within the broader AI market.
It recently completed a placement at 2.2 cents per share. Since then, the stock has traded around 10% above the placement price, which has given a number of our clients who participated through us a solid result.
We have also been working on the other side of the capital-raising process.
Mining companies need money well before they start generating cash. Exploration, drilling and project development all cost money upfront, and that money is harder to raise when investors can earn close to 5% in government bonds.
That is the environment OZCO raised its seed round in, and we helped them get it done.
For us, September has therefore been pretty satisfying.
So yes, September ended with a rate hike. Money is more expensive, and it will likely stay that way for a while. But expensive money isn't the same as no money. It's money that asks harder questions. Our job is to find the companies that can answer them.
Disclaimer
This information is of a general nature only and has been prepared without taking into account
your objectives, financial situation or needs. You should consider the appropriateness of the
information, having regard to your circumstances, before making any investment decisions.
This communication is not personal financial advice. Vitti Capital is a Corporate Authorised
Representative of Point Capital Group Pty Ltd (AFSL 518031).
If you have not previously received a copy of our Financial Services Guide (FSG), it is available
free of charge from our website (https://vitti.capital/fsg/) or by contacting us. “Vitti Capital and its
representatives may hold or have exposure to securities mentioned. Any such interest is
managed under our Conflicts of Interest Policy (https://vitti.capital/privacy-policy-2/).”
