Quarterly newsletter, June 2022

The bill for the stimulus

June was a big month in an eventful year for the local and global economy, with inflation and interest rates continuing to dominate. The US Federal Reserve lifted official rates by 0.75% to a target range of 1.50-1.75% to combat surging inflation of 8.6% in the year to May, stoking fears of a US recession. Australia faces similar but less acute challenges. With inflation sitting at 5.1%, the Reserve Bank lifted the cash rate by 0.5% to 0.85% in June and Governor Philip Lowe hinted at several rises for the remainder of 2022.

The full issue, including the additional articles that accompanied it, is available as the original PDF.

Download the full issue

COVID- based economic stimulus has effectively brought forward demand from future years into 2020 and 2021. In 2022, governments are faced with the consequences of over- stimulating their economies, forcing them to apply rate rises and other measures to curb price/cost growth.

The Australian economy is still growing relatively strongly at an annual rate of 3.3%. Retail trade rose 10.4% in the year to May on the back of low unemployment and high household savings. Household wealth rose to a record high of $574,807 in the year to March, but since then there has been a global sell-off in shares, a slowdown in the Australian housing market and cost of living pressures (exacerbated by supply-side shortfalls) are very evident. It is no surprise that consumer sentiment is turning decidedly negative as housholds work through higher costs and what is likely the peak of house prices for some years. Consumers can absorb some higher costs and some erosion of their feeling of wealth but there is a limit.

The unemployment rate is a key indicator of how we will navigate a potentially rocky year ahead - unemployment is the primary driver of house prices, consumer sentiment and spending. Current indications for the next 12 months are for employment to remain robust. Given ‘full employment’ is a core part of the Reserve Bank function, we expect the RBA will cautiously use rate rises so as not to cause unemployment to become an issue.

Returns for the full Financial Year (12 months)

  • All Ordinaries: 6747, down 838 points or -11.05%
  • Listed Property Accumulation Index 53341, down 7450 or 12.25%
  • 90 Day Bank Bills 1.81%, up 1.78%
  • AUD vs U.S. Dollar 69.14c, down 5.56 cents or down 7.44%
  • UK FTSE 100, 7170 points, up 160 points or 2.28%
  • Dow Jones Industrial Avg, 30775 points, down 3470 points or 10.13%

Guardian Investments Pty Ltd ABN 18 608 506 261 is a Corporate Authorised Representative of Guardian Associates Pty Ltd AFSL 238281. This page reproduces commentary published in June 2022 and is general advice only. It has not been tailored to your objectives, financial situation or needs, and the figures were current at the time of writing. Past performance is not a reliable guide to future returns. Seek personal financial advice before acting on it.