Investment Market Update – April 2023

What banking crisis?

March saw the banking sector weather central banks’ actions over the last twelve months to rein in inflation.

Signs of stress in the global banking sector sent a clear message to investors that current interest rate settings are now reaching a level that will slow economic activity and reduce inflation.

Some investors have read this as a signal to expect rate cuts later this year. This scenario is certainly something bond markets are anticipating, with interest rates on government bonds falling over the month.

Here in Australia, the RBA paused in April, its first in 10 months.

Global Share Markets
March 2023
Financial Year 2022-2023
ASX 200
Dow Jones
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Shanghai Composite

The RBA Governor cited signs of falling inflation, the tremors in the global banking sector, and a prudent desire to put a hold on further rate rises. The Bank is awaiting a clearer picture of the flow-on effects of its aggressive monthly rate rises.

Unsurprisingly, the pause has been immediately felt in the residential property sector, with auction clearance rates and house prices up over the month.  On our share market, housing related stocks also enjoyed a rebound.

This reaction requires some level of caution. The full effects of the impacts of ten monthly rate rises are still to play out on household budgets.

The mortgage cliff is just around the corner, where many borrowers who secured attractive three-year fixed rate mortgages at around 2% during COVID lockdowns, roll these mortgages over at closer to 6%.

Even so, it would be premature to suggest we are seeing the beginning of a new housing cycle, as consumers are still adjusting their household budgets to this reality.

Whilst we may be close to the end of the current interest rate cycle and house prices may have bottomed, investors need to turn their attention to corporate earnings.

Similar to households, Australian corporates are reviewing their operating outlooks and will be making budget and cash flow adjustments.

This will likely flow through to earnings downgrades over the next year. We are starting to see signs of this, with many consumer-facing stocks offering cautious outlook statements for the next 12 months.

Please don’t hesitate to contact me should you have any questions. 

Kauri Wealth Management is a Fee for Service investment advisory business and as such my advice is built around ongoing personal relationships with my client base. Personalised independent advice is backed up by a breadth of industry knowledge.

I accept a limited number of new clients each year and would be happy to discuss this further with you. Please don’t hesitate to contact me.

Russell Lees
Senior Adviser
Phone: +61 439 852 963

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