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weakened as the US dollar performed well, Europe saw the US dollar surge putting
benefiting from broad risk aversion. downward pressure on the Australian
With major central banks around the world, dollar.
fixated on slowing growth and cooling The resultant moves higher in central bank
labour markets (in what seems at any cost) cash rates, coupled with higher costs of
to rein in inflation, official cash rates have living, saw soft economic data start to
risen considerably. The RBA lifted the weaken quite significantly including
official rate in both May (first rate hike consumer confidence and sentiment
since 2010) and June to bring the official indicators, surging US credit card debt, and
rate to 1.35% by quarter end. weakening construction and housing
market data as fixed mortgage rates
surged, auction clearance rates nosedived,
Quarter in review and construction company stress emerged.
The June quarter was one for records – the In contrast, hard economic data continued
lowest Australian unemployment rate since to hold up reasonably well including retail
1974 and the highest US inflation rate sales, manufacturing and services data,
since 1981 – all whilst markets shifted from and strong employment data. Recession
pricing inflation risks to pricing recession risks began to rise with the market turning
risks, with an ever-complicated backdrop its attention late in the quarter to firmly
including the threat of an escalating war on fixate on pricing nearer term recession.
Europe’s doorstep, increased supply This meant economically sensitive equity
challenges caused by the conflict and sectors like resources, financials,
covid lockdowns in China, and concerns consumer discretionary, and real estate,
regarding energy and food shortages along with riskier small and medium sized
globally as the prices of both skyrocketed. companies, coming under intense selling
pressure as the market moved into a risk-
The rather narrow beneficiaries of an off environment. Credit spreads within
increasingly likely stagflationary bonds also started to widen with largely
environment (i.e. high inflation, falling or nowhere to hide. However, the move to a
low economic growth) continued into the risk-off environment did provide a reprieve
June quarter with higher energy and to government bonds, with investors
commodity prices benefiting the resources seeking out safety and taking advantage of
sector, the prospect of a sharp central higher yields, whilst investors began to
bank rate hiking cycle supporting banks discern good growth stocks from bad
and insurers, and utilities benefiting from growth stocks and more importantly,
equity investors seeking out safety and discern quality from growth, giving good
inflation protection. growth and quality biased stocks a
Increased rhetoric regarding “peak” reprieve.
inflation proved to be premature as inflation Interestingly, infrastructure, Asian equities,
continued to rise in many jurisdictions as and emerging market equities (to a lesser
wages surged in tight labour markets in extent), were three of the better performing
trying to keep pace with rising energy, asset classes in the quarter, with investors
food, and shelter costs. The stubbornness seeking out safety and defensiveness in
in inflation simply acted to embolden infrastructure whilst seeking relative value
central banks to act more decisively in in Asian and emerging market equities as
taking away stimulus, with many central the Chinese government stepped away
banks moving to increase rates in larger from its aggressive regulatory stance and
than normal increments. These moves began to provide both fiscal and monetary
caused increased market volatility with stimulus to lift their economy out of the
government bonds continuing to come doldrums following a lengthy period of
under selling pressure along with growth large and quite significant covid-related
stock names including technology stocks. lockdowns. The risk-off end to the quarter
The move in central bank cash rates and did see oil prices fall but remain high due
the worsening economic conditions in to continued supply issues and strong
