Research Insights - Market Commentary November 2022
Markets enjoyed another month of solid gains in November as weaker than expected US and Australian inflation prints saw investors reconsider the pace of future interest rate hikes by Central Banks.
The prospect of inflation being brought under control in 2023, along with cash rates and bond yields peaking triggered a significant rally in most growth assets, despite a new round of COVID-19 lockdowns in China. Daily new cases of COVID-19 reached a record-high, resulting in up to 400 million Chinese citizens living with restrictions as the country persists with its zero-COVID approach.
During the month, the US Federal Reserve raised interest rates by 75bps to a target rate of 3.75%-4.0% and the RBA raised the cash rate in November by 25bps to 2.85%. RBA Governor Lowe noted in his Monetary Policy Statement that “the Board recognises that monetary policy operates with a lag and that the full effect of the increase in interest rates is yet to be felt in mortgage payments”.
The Australian share market was up 6.7% in November led by the Utilities and Materials sectors. A fall in Australian bond yields aided bond proxies such as AREITs which gained 5.8% for the month. Currency-hedged international equities gained 5.4% while unhedged international equities rose by 2.0%, hindered by a stronger Australian dollar that was up 5.0% in November and now buying US$0.6711. Asian equities (excl Japan) rose double-digits as China eased some quarantining requirements and simplified travel restrictions which may aid economic growth.
The Australian 10-year government bond yield fell by 23bps to 3.53% and the 2-year government bond yield fell by 12 bps to 3.11%. The US 10-year government bond yield decreased by 44bps to close at 3.61% and the US 2-year government bond yield decreased by 17bps to 4.31%.
Key Developments Post Month End
The RBA raised the cash rate by a further 25bps in December to 3.10% and in its accompanying Statement noted the following:
“The Board expects to increase interest rates further over the period ahead, but it is not on a pre-set course.”
“The path to achieving the needed decline in inflation and achieving a soft landing for the economy remains a narrow one.”
“A further increase in inflation is expected over the months ahead, with inflation forecast to peak at around 8 per cent over the year to the December quarter. Inflation is then expected to decline next year due to the ongoing resolution of global supply-side problems, recent declines in some commodity prices and slower growth in demand.”
“The Bank’s central forecast is for CPI inflation to decline over the next couple of years to be a little above 3 per cent over 2024.”
Important information
Research insights is a publication of australian unity personal financial services limited abn 26 098 725 145 (aupfs). Any advice in this article is general advice only and does not take into account the objectives, financial situation or needs of any particular person. It does not represent legal, tax or personal advice and should not be relied on as such. You should obtain financial advice relevant to your circumstances before making product decisions. Where appropriate, seek professional advice from a financial adviser. Where a particular financial product is mentioned, you should consider the product disclosure statement before making any decisions in relation to the product and we make no guarantees regarding future performance or in relation to any particular outcome. Whilst every care has been taken in the preparation of this information, it may not remain current after the date of publication andaustralian unity personal financial services ltd (aupfs) and its related bodies corporate make no representation as to its accuracy or completeness.
