Macro Articles

You may have heard the joke about central bankers … how many central bankers does it take to change a light bulb? None. If the light bulb needed changing the market would have done it already. It won’t surprise you to hear not many central bankers find this joke funny. But what if the light bulb that needed changing was persistent inflation, and what if the market believes it can relax as the RBA has already changed that light bulb?

With global equity markets celebrating the prospect of impending rate cuts by the Fed, some investors have been wrong-footed by the extent of the recent enthusiasm, particularly in US tech stocks. If you’re underinvested and are considering joining the equity party in earnest, it’s worthwhile digging into the market’s Fed fund rate expectations for an understanding of whether market expectations are on point, or not. This situation may well dictate global and Australian equity market performance in the coming months.

With the US economy and stock market continuing to drive global markets, Aussie investors increasingly need to understand what’s driving American fund flows. Spoiler alert: it’s not just corporate earnings. There are liquidity drivers at play in the US that are creating remarkably strong feedback loops with stock valuations and the broader economy. Understanding how these liquidity feedback loops work may well provide clues as to what’s coming next for global equity markets, including the ASX…

In the words of John Kenneth Galbraith, ‘We have two classes of forecasters: those who don't know, and those who don't know they don't know.’ You’d be forgiven for believing we are already in the midst of a recession given the amount of bearish economic commentary in recent months. However, at least in nominal terms, the Australian and global economies have continued to grow despite sharply higher interest rates—and it is nominal growth that matters most to equity markets. With the end of the year fast approaching, it’s timely to consider the 2024 economic outlook—and one particular economic forecast that stands out as vulnerable to being wrong as we approach the new year…

It’s been a challenging year for most investors with sharply higher interest rates leading to significant underperformance in asset classes which used to be regarded as defensive such as government bonds. The rules of the game have been turned on their head.

The recent Australian Consumer Sentiment Snapshot reveals Aussie consumers have one particular economic factor front of mind… inflation. The inflation monster is impacting upon consumers’ disposable incomes, and more importantly it’s causing havoc in consumers’ minds where it’s doing most of its insidious work. It’s this growing awareness and fear of inflation which suggests we may be on track for inflation to trend higher than markets (and central bankers) currently believe. If that is indeed the case, the investment implications are significant…

The economic news from China is getting worse. From deflation to falling exports, high unemployment, and a debt-laden property sector, the global economic powerhouse is facing significant challenges. Clearly, these growing economic challenges are bad news for the many ASX-listed stocks exposed to China.

When US Fed chairman Jerome Powell admitted last year, ‘We now understand better how little we understand about inflation,’ it confirmed what many investors suspected…inflation is a more complex beast than most people, including central bankers, realise.

You may have heard the classic joke about economists… Economists were created to make weather forecasters and astrologers feel better about the accuracy of their predictions. US economists have certainly lived up to this stereotype of late. There’s rarely been a period when economists have been more wrong-footed by a strengthening economy.

If you’ve been following the financial news closely, you've probably heard analysts warn of the risks facing consumer discretionary stocks due to the looming retail slump. Those risks are now manifesting as Australia is in the midst of a consumer recession with three consecutive quarters of declining retail turnover. So the post-covid retail honeymoon is over—and consumers are opting for value-driven choices as the tailwinds provided by the excess savings accumulated during Covid wane.

The world of yield investing has been through a dramatic transformation in recent months as central bankers have raised rates at an unusually aggressive pace. Equity and bond markets have fast adapted to this new world order, but what happens if the current yield split between equities and bonds doesn’t apportion risk fairly?

If you follow the financial news closely, you may be tired of hearing about the RBA’s incessant rate rising and the resulting tales of woe around the country. It sometimes feels like interest rates are monopolising the airwaves at the expense of everything else. But what if hearing the words, “The RBA raises rates yet again,” were to inspire joy in your world (or at least indifference) rather than dread?