Global Market Outlook

We have experienced a volatile start to the 2022 calendar year with investors focussed on high inflation and what this could mean for interest rates over the next 6 to 12 months. This has been the main source of volatility in global markets during the last 6 months.

The Australian market is down 12% since the start of the year. Global markets however, have fared worse, with the S&P 500 index in the United States down 21% since the start of the year.

Inflation is running hot and central banks are raising interest rates in response to this.  In Australia, core inflation for the June 2022 quarter was 4.9%, above the Reserve Bank of Australia’s target range of 2-3%. Similarly, in the United States, core inflation for June 2022 was above the Federal Reserve’s comfort level at 5.9%.

The inflation we are currently experiencing is a combination of excess demand, supply constraints as well as the war in Ukraine. The strong economic conditions are best reflected in current low level of unemployment, which is 3.5% in Australia and 3.6% in the United States.

Regarding interest rates, we have lifted from low levels up to 1.35% in Australia and 2.50% in the United States during the past few months, with economists predicting that interest rates will rise to 3.0% in Australia and 4.0% in the United States by the end the year.

With a correction underway, we will be focused on the latest economic data and company results in the coming weeks and months. We will capture this information, along with all other relevant data points, and adjust the portfolios as necessary during this time.