Written by Isaac Robinson
Share Market Update June 2023:
The markets have been more active in the lead up to the end of the 2022/23 financial year. The SP500 is up 3.4% over the past month, mainly driven by tech stocks due to investor enthusiasm over artificial intelligence, and the consumer discretionary sector. The ASX200 did not see the same positive performance, with a 1.2% decline over the last month as inflation and rates increased. In Europe, the Bank of England voted to increase the pace of their rate hikes due to inflation refusing to slow for 4 months in a row. This led to recession fears in Britain and Europe, causing the STOXX 600 Europe to drop 1.8%.
The Shanghai Composite is down 1.7%, as China continues to struggle with slowing export demand, a housing market slump, and weak business and consumer confidence. Despite poor performance over the past week due to a below expectation rate cut, the Hang Seng regained some of its May losses, bouncing back 1.4% over the past month. After hitting a 33-year high in May, the Nikkei 225 continued its strong performance, rising 6.3%. One major factor driving the continued momentum was Japan’s Q1 GDP expanding by 2.7%, significantly higher than consensus estimates.
Australian Economic Overview:
In Australia, Gross Domestic Product (GDP) increased by 0.2% in the March Quarter 2023, down from 0.6% in the previous quarter and the weakest result since the COVID-19 Delta lockdown in September 2021. GDP growth was fuelled primarily by domestic demand, while stronger growth in imports relative to exports detracted from GDP. Despite a halt in the interest rate hike in April, May and June saw the rate hike resume, pushing the cash rate target up to 4.10%. Economists at the big 4 banks are all predicting one more rate hike, resulting in a peak rate of 4.35%, although CommBank said there is a risk that there will be a rate hike in both July and August, resulting in a peak of 4.60%. At the end of the March Quarter, annual CPI inflation was 7.0%, down from a 30-year high of 7.8% in the December quarter. Out of all of the areas, housing experienced the highest inflation at 9.8%. Inflation is also continuing to significantly outpace wage growth, despite annual wage growth increasing from 3.4% to 3.7% in the March quarter. Unemployment also increased throughout the quarter, rising from 3.5% in March to 3.7% in April. The AUD/USD exchange rate remained flat over the past quarter, but the Australian dollar strengthened against the Yuan.
World Economic Overview:
The United States is responsible for approximately 25% of global GDP. Due to the size of their economy, the economic health of the US has a global impact. In June, the Federal Reserve decided not to increase rates for the 11th consecutive month, stating that the full effects of their tightening have yet to be felt and they want to wait and measure the impacts. This leaves the Fed’s rate in a target range of 5% to 5.25%. The Fed’s fight against inflation appears to be working, with inflation down to 4.05% in May from 4.93% in April, adding to what is now an 11-month trend of declining inflation. However, the tight monetary policy appears to be impacting growth, with annualised GDP down from 2.6% to 1.3% in Q1 2023.
China is responsible for approximately 19% of global GDP, and is also very important on the global stage, especially to us here in Australia. The Q1 2023 GDP annual growth rate was 4.5%, up from 2.9%. However, the most recent news coming out of China has not been positive, with slowing export demand, a housing market slump, and weak business and consumer confidence. In response, the People’s Bank of China cut rates from 3.65% to 3.55% in an attempt to stimulate the economy.