Research Insights | Market Commentary September 2023
De-inversion of yield curves continued during the month. An increase in 10 year bond yields relative to 2 year bond yields over the month weighed on both bond and equity returns for the month. Investors are re-calibrating valuations as risk-free rates and long term bond yields are changing. The prospect of higher interest rates for longer is changing risk/reward considerations for all asset classes.
Rising oil prices (and petrol prices) have added to investor angst recently. In September oil prices gained 8.5% and have gained over US$20 per barrel over the quarter. Rising petrol prices together with rising interest rates are placing increasing pressure on consumer discretionary spending which may see pressure on economic growth moving into 2024.
Australian Equities fell by 2.75% with only the Energy sector in the black. Information Technology and Health Care were amongst the worst performing sectors for the month. Hedged global equities fell by 3.77% slightly outperforming unhedged global equities that declined 4.01%. The Australian dollar declined slightly over the month to US$0.6435 down from US$0.6470 at the end of August.
The Australian 10-year government bond yield increased by 46bps to 4.49% and the 2-year government bond yield increased by 29bps to 4.08%. The US 10-year government bond yield rose by 46bps to close at 4.49% and the US 2-year government bond yield increased by 17bps to 5.04%.
Key Developments Post Month-End
The RBA met on 3rd October and decided to leave the current cash rate at 4.10% noting that “Inflation in Australia has passed its peak but is still too high and will remain so for some time yet. Timely indicators on inflation suggest that goods price inflation has eased further, but the prices of many services are continuing to rise briskly and fuel prices have risen noticeably of late. Rent inflation also remains elevated. The central forecast is for CPI inflation to continue to decline and to be back within the 2-3 per cent target range in late 2025.”
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