BHP reclaims crown as Australia's largest listed company

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[00:00:01]Coming up, BHP shares closed at a record. Why US markets are outperforming and purchase cost surging. Details next.

[00:00:09][music] [music] >> [music] >> Hi everyone, welcome to the SPS on the Money podcast for this Tuesday the 12th of May 2026. Today with the Australian share market rose, the S&P ASX 200 fell rather by.36%.

[00:00:39]The 200 down by 31 points or 0.36%.

[00:00:43]We'll have the details with Jonathan Sheid from State Street Investment Management. What did rise though? BHP shares and they hit a milestone and a record high. We'll have the details soon. If you're new to the podcast, welcome. We go into more detail of the top consumer finance and market news stories covered during On the Money on SPS World News. But first, business conditions are continuing to fall and are now at their lowest level since 2020. The NAB survey, which is closely watched by the RBA, points to the prospect of slower economic activity in the coming months. The war in the Middle East is continuing to impact purchase costs for businesses which have soared in April as higher fuel prices flow through the supply chain. For more, Stephanie Ysef spoke with NAB head of Australian economics Gareth Spence.

[00:01:29]>> So Gareth, business confidence um improved slightly in April, but forward orders and investment um fell sharply.

[00:01:37]Is this a sign businesses expect economic conditions to worsen in the months ahead?

[00:01:43]Uh look, confidence did rebound a little bit by five points in the month, but kind of at minus 24 index points is still still quite weak. And I think you know, you're very right there to point out uh the falling forward orders uh and the slight softening in conditions and so I think you know what we're watching really closely here is we know that the headlines are quite strong, quite negative. Oil prices are quite visible and so unsurprisingly, you know, businesses are uncertain. um activity held had held up last month and I think um you know what we're watching going forward is really how does that map into to actual outcomes in terms of activity in terms of investment in terms of employment and we did see forward orders uh four five points in this month's survey we sorry four points in this month's survey we did also see uh employment four five points and I think that's really what we're watching here is how does that weak confidence translate into kind of you know employment hiring and even consumer spending decisions >> what kind of inflation ary pressures um are businesses seeing and are they passing on cost increases to consumers?

[00:02:43]>> Yeah, look there is a bit of evidence uh in that in the survey. I think it's really the what we call the goods production and transport industries um are certainly seeing I think firstly the cost pressures. So transport and utilities uh certainly reporting the strongest you know input or purchase cost growth in our survey uh over the last couple of months. um mining as well with a quite a heavy user of fuel and diesel. But actually interestingly as well manufacturing and construction which we know where oil in terms of transport and freight but also in terms of those direct input costs into products and plastics that they use uh is certainly flowing through. So kind of a really relatively broad-based pressure in a cost sense. And in terms of output prices, you know, there was a bit of a pickup in that measure in the month.

[00:03:26]Quite interestingly, uh, you know, I guess transport and utilities unsurprisingly passing on the cost pressures of energy and transport, but actually retail a fairly solid outcome as well. And then, you know, manufacturing to to a lesser extent and also actually construction, which is one we're watching very closely given its its significance in the Australian CPI.

[00:03:47]And in terms of the kind of businesses that are passing on those cost increases, are you seeing that they're um [clears throat] either small or big businesses or is it across the spectrum?

[00:03:58]>> Look, anecdotally, we we certainly think it's quite broad-based. Um one thing that's been quite interesting about this episode and and Governor Michelle Bulock from the RBA noted uh last week in the press conference as well that they expect, you know, the price pressures and and cost pressures to be quite broad and rapidly passed on. And it's certainly something we do hear. Um, as I said before, oil prices are very visible. Transport costs are very visible. And the thing that's flowing through now is all the things that oil isn't input into, like plastics or tires, for example. And so that's starting to come through a little bit more. Even people who are kind of packaging goods and transporting goods, you know, there's quite a lot of plastic involved in that or oil derivatives. And so, you know, that's that's there.

[00:04:38]What's been quite remarkable from from our range of customers that we talked to is just how quickly, you know, they've been prepositioned from their own suppliers and even, you know, freight and transport to to pass on kind of the search charges or the cost pressures.

[00:04:50]So, we know they're there. We know it's quite broad-based. Um, I guess we're just watching overall how how long it does persist.

[00:04:58]>> So, the survey points to as as you mentioned rising input costs alongside weakening demand. What does that combination mean for jobs, prices, and the broader economy?

[00:05:09]>> Yeah, so that's exactly right. What we're watching really closely here is how does this weaker sentiment and you know the challenges of effectively of margin pressure for businesses. So, you know, we're all quite well aware of the impact on consumers with higher petrol prices and discretionary spending, you know, almost crowding out a little bit some of that that discretionary side or sorry, the non-essential side. And so, uh, for businesses really a question about margins. We know that we've certainly had quite a lot of cost pressure over recent years. We know that prices certainly probably didn't retrace much of those gains. And so for businesses really a question of how much can they absorb that that cost pressure themselves versus how much can they pass on to to consumers. And then ultimately, you know, that's that's what we're watching as economists and certainly the RBA and policy makers will watch as well is, you know, not just an immediate very obvious inflation shock that's playing out right now, but what does this lead to in terms of economic activity, you know, a little bit later down the track this year.

[00:06:04]That's Gareth Spence from NAV speaking with Stephanie Yousef. To the Australian share market now, which fell for a third consecutive session, the ASX 200 down 4%. The technology sector performed worst. Location app company life 360 tumbling 11% as it downgraded its user growth guidance. The banks were also down across the board. CSL fell another 2.2%.

[00:06:26]But today's weakness came as amid strength from the mining sector namely BHP which hit a record high breaching $60 at one stage today and closed up 2 a.5%. Its market cap is now nearly $300 billion, overtaking the Commonwealth Bank to be Australia's largest listed company. Its size means it's included in many super funds and shares have surged 56% over the past year as it produced record amounts of iron ore and copper.

[00:06:56]But it's also part of a broader theme where material sector has been outperforming others in many parts of the world, including here in Australia.

[00:07:03]For more on that and the rest of the day's market news, I spoke with Jonathan Sheid. is the head of investments at State Street Investment Management.

[00:07:11]>> So Jonathan, we're seeing US shares, for example, at or near record highs. In Australia, we're underperforming. How would you describe investor sentiment at the moment and what's driving it?

[00:07:22]>> It's been an interesting uh first start to the year. Um the US was kind of pretty flat for the first couple of months of the year. we were seeing a rotation out of some of those really exciting tech names and Australia had did pretty well for the first couple of months of the year and since then as you pointed out the US sold off on the Iran war but it's back I don't know seven or 8% above where it was at the end of February but this is less about the US versus Australia and actually the US versus the rest of the world so that kind of pattern that we've seen in Australia is common across the globe.

[00:08:01]We've seen similar market moves in Europe, uh in the UK, uh in Japan, uh and so on. And I think a lot of it comes down to the resilience of the US economy. They're just not quite as vulnerable to what's happening in the Middle East. And as geopolitical risk has jumped off the charts, things like uh the tech revolution and AI and earnings in the US have come to the four and investors have flocked to that kind of certainty. Uh so it's really about the US perhaps being less vulnerable than the rest of the world. Um it's not all bad news for Australians. We certainly had a strengthening Australian dollar in that period. So after you allow for currency movements, the Australian equity market hasn't done that badly compared to global peers.

[00:08:51]>> Speaking of not doing badly, you've got the likes of the mining sector doing well. Um BHP today hitting another milestone, a record high, shares above 60 bucks, which is good news for super funds since it forms such a large part of many Australian super funds. While other sectors though, like healthcare appear to be going backwards. What do you think that says about the structure of our market? Um, why BHP is climbing and what it says about Australian and global economies?

[00:09:20]>> It's interesting you pull out those examples. Um, because at State Street, we've noticed that some of those sector themes you're seeing in Australia are actually replicated in the US market that we were just talking about. Uh so if you look at the US market, the best performing sector, surprise surprise, uh this year has been energy and energy is a strong performing sector in the Australian market. Not particularly big in either the US or Australia, but it's the strongest performing sector. And next is technology in the US. We'll come back to that. But then materials and materials is another strong performing sector in the US. And so Australia has benefited from that materials uh strength and that's part of a broader commodities complex. Scarcity of commodities or uncertainty about a broader number of commodities combined with global growth that still looks pretty resilient I think has contributed to some of that uh interest in commodities. Of course, what's happening in technology has implications for particular commodities uh including uh rare earth metals and copper and things like that. But then if you look at the sectors that have not done particularly well in the US, it's things like financials and some of the uh consumer segments and healthcare. And so you come to Australia where uh financials, staples, healthcare, none of those sectors have done particularly well in an environment where there's concern about credit where the consumer confidence has taken a hit. Uh some of those kind of segments. So a lot of the differences can actually be traced to the structure of the Australian market.

[00:11:05]uh as we pointed out I think the other thing that's happening is we are starting to see some really significant stockspecific divergences so you can no longer say here's a theme let me track it and it doesn't matter what company I buy I'll do well we've seen that in Australia we do have a technology segment it's not a particularly big one but uh its performance hasn't exactly stacked up next to the US for stock specific reasons and because the kind of services that are provided. Uh and the same thing applies across a number of other in the US as well where individual stocks really count when you come to build your portfolio.

[00:11:48]Now for um transparency for our audience, uh this interview is being recorded before the budget is detailed.

[00:11:54]So instead of speculating about what's in it, what do you think should be there to ensure Australia's economic responsibility?

[00:12:04]the stuff that I think should be there um doesn't necessarily make good television. Um so I'm not expecting to see it tonight. But if you look at the problems we face, I think at State Street we've done a lot of thinking about problems like uh low productivity, um shortages of skilled labor, problems with the housing affordability, subdued wage growth, those kinds of problems.

[00:12:28]And we think that actually infrastructure is a key enabler for those kind of problems within the Australian economy.

[00:12:38]Um, and it's much more than just housing. It doesn't feel particularly glamorous on budget night, but things like transport, you know, rail ports, airports, uh, and so on. things like buildings, health, housing, education, uh even utilities, you know, the electricity grid or energy infrastructure more widely. Um telecommunications, water, those kind of infrastructure requirements really drive so many positive benefits for the broader economy uh to help lift our standard of living and our real wages. I mean the the broader kind of construction and infrastructure part of the economy is probably about a tenth of the economy a little bit under 10% of GDP something like a million jobs and making sure that segment is really humming that projects are being uh produced effectively productivity improves delivering on infrastructure um we think is is critical and just as a side note I was interested to see just this week that Treasury has proposed, it's only a proposal, uh some changes to how big superanuation funds are regulated and some of those changes could have implications for infrastructure areas like social and lowcost housing or renewable energy generation and so on make it just a little bit easier for superanuation funds to invest in those kind of opportunities for their members. So I think less glamorous on budget night but some of the research at state street we've done would point to infrastructure as a key enabler >> and that's a good point because a lot of it also comes to who funds this for a while there I think you had the government funding a lot of these infrastructure projects but then there came the issue of labor shortages and the impact it had in the private sector as well but but given that as well in the back of our minds um there's also this discussion about whether or not the budget will be inflationary I guess we don't really know yet right now. But what's your view on interest rates? What the market's thinking? Because Australia is lifting interest rates at a time the rest of the world for now is holding.

[00:14:53]>> Yeah, Australia, I talked about the US not being as vulnerable as the rest of the world. Australia is actually pretty vulnerable on that front. And Australia is vulnerable for a few reasons, I'm afraid. Uh firstly, we already had capacity issues before the conflict in the Middle East and that capacity is due to things like low productivity and um you know a need to invest better in infrastructure uh but also things like as I'd mentioned uh skilled labor shortages and so on. So we already had a capacity problem. Uh higher petrol prices apply around the world. Everyone's having to pay more to put into their car. But the secondary effects, the kind of flowth through effects in Australia, uh, we think are probably a little bit worse than in other parts of the world. We have a very energyintensive economy. And if you think about everything from ride share or last minute uh last mile food delivery systems or construction for sort of plastics and PVC piping and those sorts of things or uh food for refrigeration and transport from wholesale sailor and so on. Uh those second round effects seem to us to be coming quicker in Australia and more aggressively in Australia than they do in some other economies. Um, we also have a high reliance on petroleum products out of the straight much more so than Europe and the US. Um, we're not alone in Asia in that respect, but that's another vulnerability for us. So, uh, we were probably ingring on the side of not wanting to see interest rate increase increases in Australia and wanting to see the RBA cut earlier this year, but I think the markets moved to expecting one and probably two interest rates this year. Uh, and that we think is is reasonable. Whereas in the US, as you pointed out, we we'd much more inclined towards one or two cuts perhaps towards the back end of this year.

[00:17:01]So, in wrapping everything we've just discussed, what are you telling your clients right now? And are there opportunities for investors?

[00:17:11]There are certainly opportunities um for investors who are really tapped into the market and able to move very uh swiftly.

[00:17:20]Um we do prefer equities slightly over bonds at the moment, probably the US over places like Europe and Asia. um we quite like emerging market equities but we don't have big positions even in those quickly moving portfolios and I think for broader investors the problem is that the range of outcomes from here is so wide and so unpredictable it's probably not not the time to be swinging for the fences. Um, if this conflict is relatively short from here, we might see a spike in inflation and then things getting back to normal. But the longer it drags on, the more likely it is to have an impact on growth. And it's a bit of a it's not really a linear outcome. So, we're suggesting that clients not take big positions at this point in time. You know, at State Street, as always, we say chat to your financial advisor uh and stick to your guns.

[00:18:20]It's Jonathan She there from State Street Investment Management. And he wraps up the podcast for this Tuesday.

[00:18:27]Give it a like, a review, and subscribe if you enjoy it. And don't forget to watch On the Money during the 6:30 weekday edition of SPS World News on S.

[00:18:35]The podcast returns tomorrow. It drops after the market close every weekday.

[00:18:39]We'll have some details about what the budget means for investors, and I'll catch you then. This SPS [music] on the money podcast is provided forformational purposes only and should not be understood as constituting advice [music] or a recommendation. It is not personal advice and it does not consider your personal circumstances or objectives. You should contact a licensed professional before making any financial decision.