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Quarter In Review – December 2022 pressure as a crisis of confidence hit
The March quarter was largely a positive Silicon Valley Bank and a few others,
one for investment markets, but it felt like either linked to the technology / crypto
we went through ten rounds in the ring to sector or smaller regional banks.
Interestingly, this wasn’t GFC mark II
get there.
given bad debts remain incredibly low and
It was a tale of three completely different banks generally well capitalised. It was a
months with wild swings in investor function of a sector under pressure (ie.
sentiment and expectations the driving technology sector) as the irrational
force of investment markets. exuberance of the Covid period washed
January started off with a bang, in stark out, a concentrated relatively affluent,
contrast to December returns, with customer based, and terrible treasury
investors feeding on any positive news management by the banks themselves.
they could get their hands on. This US regulators moved swiftly to protect
included but wasn’t limited to: European deposit holders and provide a liquidity
energy crisis averted (a milder winter and backstop to the banking system. However,
the US provider support via their strategic the negative investor and concerned
petroleum reserves); US company deposit holder sentiment shifted to Europe
quarterly reporting season came through with Credit Suisse identified as the
better than expected (though weaker than weakest link, which culminated in a swift
the same time last year); China reopening, and quite unusual bailout by Swiss
which began in November, continued authorities, sending reverberations
supporting outlook for global supply chains through some parts of the bond market.
and Chinese demand; and the changing Interestingly, investor sentiment and
interest rate dynamic (flipped to dovish) as expectations shifted drastically in a
the US central bank shifted to smaller rate positive direction on the view that either
hike increments (ie. 0.75% to 0.50% in central banks won’t raise rates any further
December 2022 and 0.5% to 0.25% in to protect the banking / financial system (a
February). That resulted in equities and misguided view in our opinion) or won’t
property powering ahead (ie. monthly have to raise rates any further as the
gains more akin to annual returns) and banking system tightens financial
bonds producing one of their best months conditions themselves thus doing the
in over a year. It all seemed too much too remaining heavy lifting for central banks
soon, but no one was complaining after a (definitely possible). Markets were always
year like 2022. going to rally on a whiff of an impending
That positive sentiment spilled into the pause in central bank rate hikes, but
early part of February but was short-lived investors took it one step further by
as concerns arose regarding the pace and bringing forward their expectations of rate
evenness of China reopening in the cuts. That change in expectations, and
absence of reasonable to significant oddly positive sentiment, saw markets
government / central bank stimulus and rally exceptionally strongly the back end of
western central bank rhetoric turned more the month with global equities and bonds
hawkish as they moved to put a lid on attracting all the attention, Australian
animal spirits by reminding investors that equities didn’t get the memo, and property
they still have a long way to go bring fell sharply on concerns regarding the
inflation under control. That hawkish tone economic outlook and tighter financial
sent investor sentiment packing as conditions in the period ahead.
expectations of a “soft landing” or a central The Australian dollar fell from US71c to
bank pause very quickly disappeared and US66c in the quarter assisting unhedged
not helped by opportunistic profit taking global equity, property, and infrastructure
following an unusually strong January. allocations, as currency investors moved
That negative sentiment carried into to a risk-off stance.
March until we saw US banks come under
