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Markets update

Damien Graham, Chief Investments Officer recaps what’s been happening in the market over the first quarter of the 2023/24 financial year, how that builds on what is expected for the rest of the year.

Interest rates, and uncertainty about where they’re heading, was the dominant theme over the quarter. The US economy is continuing to do better than expected, even in the face of previous rate hikes designed to slow it down. Strong performance from the US economy is good news, but it also means that the US Federal Reserve (the US central bank) is likely to keep interest rates ‘higher for longer’.

Higher for longer is now the key message in markets. Inflation is coming down but is remaining ‘sticky’ (not coming down quickly), and when this is combined with stronger than expected economic growth and a tight labour market (low unemployment) it means central banks may not cut rates in the near future, even if we’ve reached the end of the interest rate rises, as many believe.

At home, Governor Lowe presided over his last meeting as Governor of the Reserve Bank of Australia (RBA) and new Governor, Michele Bullock left rates unchanged at her first meeting in October. Her statement was very similar to Governor Lowe’s last, which made investors believe she may not deviate substantially from the course he set and maintain a steady outlook.

She said that on the one hand, “some further tightening of monetary policy may be required” (in other words more rate rises could be on the horizon), but on the other hand “data are consistent with inflation returning to the 2-3% target range over the forecast period”. Or in other words, inflation is coming down in line with expectations, so previous hikes are working. We’ll just have to wait and see.

Overall, given how many interest rate hikes we’ve had, and the speed with which they’ve been delivered, Australia’s economic growth has been better than expected.

On the other hand, household budgets are being affected by higher inflation and higher interest rates, particularly on mortgages. Australian households are understandably feeling cautious about their finances, and concerns have been made worse by the higher prices of petrol and electricity (in addition to higher mortgage costs). Spending has started to fall, and consumer confidence remains very low.

In better news, the labour market remains very tight, or in other words unemployment is still very low, although it did rise a bit over the quarter.

Michael Winchester, Head of Investment Strategy recaps what’s been happening in the market over the first quarter of the 2023/24 financial year, how that builds on the 2023 financial year, and what’s expected on the run to Christmas.

Michael Winchester: Hi, I'm Michael, and I'm here to update you on how investments have performed recently and what we're doing to grow member's super over the long term. This quarter, markets moved up and down as usual as investors reacted to different pieces of news. Some weaker economic data from China negatively affected the performance of Australian shares and kept our dollar down. There are positive signs that inflation may finally be coming down, but this might not mean interest rates will come down quickly. Some central banks are suggesting that interest rates could stay higher for longer and that we may not see any rate cuts next year. It all added up to a quarter of subdued and sometimes negative performance for many investment options. Remember, though, the short term ups and downs are normal in investing. The important thing is to focus on long term returns to build your super for retirement. Short term dips in your balance can feel concerning, but often the best thing to do is to stay invested and stick to your long term plan.

If you have questions about the share market or you want to review your investments, make an appointment to speak to your planner.

September quarter performance update

Performance for the September quarter was subdued, and we saw low or negative performance from most of our investment options. Longer term performance remains strong.

Interest rate uncertainty put investors into a “risk-off” mood, or in other words they’re worried about investing in ‘riskier’ assets like shares, and this negatively affected share market performance. On the other hand, bond yields rose sharply as investors priced in their expectation that rates will be ‘higher for longer’.

In the end, it’s important to remember that short term market volatility, or ups and downs, are a normal part of investing as investors react to different events around the world, including geopolitical tension and conflicts.

Looking ahead

Ongoing geopolitical risks are likely to make markets more volatile and could make investors more risk averse which could negatively impact performance from shares.

At the same time, volatility from geopolitical activity can be difficult to predict, and what’s key is to focus on the long-term, because long-term returns are most important to a final balance at retirement.

Questions? We've got answers.

If you have any questions, speak to your planner at your next appointment. If you haven't scheduled one yet, call us on 1300 192 602 to book it.

Disclaimer

This is general information only and does not take into account your specific objectives, financial situation or needs. Seek professional financial advice, consider your own circumstances and read our Financial Services Guide, any relevant product disclosure statement & Target Market Determination, before making a decision. Call us or visit our website for a copy. 

Past performance is not indicative of future performance.

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