Market & Economic Update - June 2023

File: Economic & Market Update

Duration: 02:40

Date: May 11, 2023

00:01 Economic Review June 2023

00:05 Last month saw the Federal Government hand down the 2023/24 budget, largely considered a moderate, balanced budget with no large announcements.

00:15 Lacking significant fiscal conservatism that would give the RBA more room to hold off further rate rises; the Federal Budget was also not considered to be particularly inflationary either.

00:25 However the RBA decided to lift rate at its June meeting, after the brief April pause, by 0.25% citing a fear that.

00:33 “if high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later, involving even higher interest rates and a larger rise in unemployment.”

00:41 Markets responded positively to the suspension of the US debt ceiling out to January 2025, heading off a US Government default.

00:50 However, the resumption of bond issuance will reverse the liquidity boost that has been provided to markets by the Treasury running down its deposits since it hit the celling in January.

00:59 The Australian share market gave up the previous months’ gains, dropping 2.53% for the month and dragging the annual return to a weak 2.9% for the year.

01:07 This was in contrast to Global developed markets, which saw continued strength with 1.26% rise for the month, contributing to an annual performance of 13.98%

01:14 The confidence from the US debt ceiling, combined with moderating inflation, continues to contribute to the resilience of global share markets.

01:23 However, we are coming off a relatively low looking back 12 months.

01:28 Inflation concerns continue to be a source of media speculation about the likelihood of a global recession and the delayed impact of the aggressive interest rate rises over the last 6 months.

01:43 CPI as shown in the April Monthly Indicators had a surprise bounce up to an annualized rate of 6.8%, up from 6.3% in the month prior.

01:50 This is likely to have been a contributor to the RBA’s decision in June to lift interest rates.

02:02 The Australian Dollar ranged up and down for the month in a range of 4.25%, finishing the month marginally lower again at 0.6508USD, a monthly decline of 1.05 US cents.

02:09 Consumer confidence slid back once again in the month of April from 79.8 to 76.2 points.

02:15 The index has now spent over 14 weeks below 80 points, the longest stretch at this level since the 1990-91 Recession.

02:20 Unemployment lifted slightly to 3.7% in April, still near its historic 50 year low, while the participation rate decreased to 66.7%.

02:26 The mild easing of employment pressure was insufficient to deter the RBA from lifting rates in its attempt to fight rising inflation from wage pressures and strong consumer demand.