He has seen firsthand the level of heat in the US economy, telling the story of a Central American food retailer who has seen wages rise 22% since 2019, amid what he described as a “much larger manifestation of a wage/price spiral” than in Australia.
That’s part of the reason Comyn is still scratching its head at bond market expectations that US interest rates will hit 3.25% next year and Australian rates could climb as high as 2.9%. , despite the fact that Australia is experiencing much lower inflation.
The ABC thinks the bond market is wrong and sees local interest rates hitting 1.35% by the end of 2022, before climbing to just 1.65% by mid-2023, or around 125 basis points. basis below market prices.
Comyn will be watching the housing market closely as the RBA raises rates, but overall he has left a clear impression that he is okay with US hedge funds no longer seeing life in trade of ‘short Australian accommodation’.
“I think housing itself is clearly late in the cycle right now. [and]as rates rise, there will be downward pressure on prices,” he says.
“I don’t think that will be a problem – clearly the labor markets are still extremely strong. But I think, consistent with a number of the indicators we’re seeing, it’s probably time to be a little more cautious.
On the west coast of America, Comyn found a technological sector under strong pressure, with top venture capitalists suggesting the environment for seed fundraising is the worst since 2000 (including the GFC), with major tech companies considering staff cuts of between 10% and 30%.
As an investor in start-ups, CBA is, of course, exposed to falling technology valuations. Indeed, Comyn also met the American head of Klarna, the giant buy now, pay later in which CBA has a stake.
Comyn insists he is not worried about Klarna’s valuation – which, for now at least, is well above the bank’s entry prices – and says the company is doing well. But he concedes that the buy now, pay later industry faces a number of headwinds that will squeeze margins, including a slowing economy, product offering that has become commoditized and growing regulatory pressures.
He also sees opportunities for big incumbents, such as the ABC, as the tech sector struggles. Not only will there be the opportunity to recruit talent, but Comyn sees signs that the balance of tech power could tip from disruptive to disrupted as tech valuations plummet and funding dries up.
“Big companies in all industries need to be able to innovate and grow their propositions faster than start-ups or fintechs can actually discover distribution or customers. And it’s much harder to find customers if you can’t fund. So I think the balance may have shifted slightly in the last three to six months.
Comyn and his team are also thinking hard about crypto after last year’s pilot project that allowed a small group of customers to trade a small number of currencies.
He says customer demand — mostly from younger male customers — remains strong, despite the turmoil in the crypto market which he says has revealed a “long tail of trash” in the industry.
Comyn says the CBA is considering many issues related to offering crypto products and services, including regulatory reforms and the need to make risks to customers explicit.
But he “absolutely” expects innovation out of the sector to continue over the next decade and wants to stay close to how the sector develops.
“I think it behooves us as a financial institution – which is fortunate to serve millions of Australians – to consider some of the offerings we may want to offer customers over time.”
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