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Weekly Brief Sheet - 19/09/22

Provides a market roundup, a selection of useful data points we use for our investment analysis, and some interesting articles/charts we have noticed recently.

Stocks fell sharply as inflation fears intensified and short-term bond yields reached levels last seen in 2007. The S&P 500 Index recorded its largest weekly drop since mid-June and hit its lowest point on an intraday basis since mid-July. Growth stocks fared worst, with the technology-heavy Nasdaq Composite falling nearly 5.5%. Communication services and information technology shares led the declines within the S&P 500 as Google parent Alphabet and Facebook parent Meta Platforms hit new 52-week lows. US industrials and materials shares were also especially weak.

The defining event of the week appeared to be Tuesday’s consumer price index (CPI) report, which came in above expectations and dimmed hopes for some investors that the economy had moved beyond “peak inflation.” Headline prices rose 8.3% for the 12 months ended in August versus consensus expectations for an increase of around 8.1%. More concerning may have been that core inflation (excluding food and energy) jumped to 6.3%—its highest level since March and above expectations for a rise of 6.1%. A 0.7% housing cost increase in August was partly to blame but rising food and medical care prices also contributed heavily. Core producer prices, reported Wednesday, offered a somewhat more hopeful story, continuing a year-on-year decline that began in April, falling to 7.3% in August from 7.6% in July.

The week brought mixed messages on wage inflation, which has been a primary concern of policymakers. Media reports said that Goldman Sachs will soon cut jobs, joining a list of large companies, including Ford Motor and Microsoft, planning layoffs. Weekly jobless claims, reported Thursday, offered a different picture, falling to 213,000, their lowest level since early summer.

The local market saw a week of volatility with the major indices down around 2% for the week. This was with the news that soaring export prices and a weaker currency are bringing Australia a cash windfall at a time when other developed economies are flashing warning signs. A very tight labour market and still-elevated savings are also helping Australian households cope with rapidly increasing borrowing costs.

Data from the Australian Bureau of Statistics on Wednesday showed gross domestic product (GDP) rose 0.9 percent in the second quarter, in line with forecasts and up on the first quarter’s 0.7 percent rise.

So resilient was the economy that the Reserve Bank of Australia (RBA) has had to embark on an uber-aggressive tightening campaign to try to cool activity and restrain runaway inflation. The central bank on Tuesday raised its cash rate 50 basis points to a seven-year high of 2.35 percent, bringing the total tightening since May to an eye-watering 225 basis points. Markets are leaning towards another half-point hike in October, and for rates to reach as high as 3.85 percent given inflation is running at a 21-year peak of 6.1 percent and likely to top 7 percent by Christmas.



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DISCLAIMER: This report has been prepared by H&G Investment Management Ltd (ACN 125 580 305; AFSL 317155) to provide you with general information only. In preparing this report, we did not take into account the investment objectives, financial situation or particular needs of any particular person. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. Neither H&G Investment Management Ltd nor its related parties, their employees or directors, provide any warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it. You should obtain a copy of the Information Memorandum before making a decision about whether to invest in this product.


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