Market Wrap July

June: Investment Struggle

• Global shares had a poor month (-4.6% unhedged and - 8.1% hedged). As expected, unhedged outperformed hedged in a “risk-off” environment, helped by a depreciation in the Australian dollar.
• Australian shares and particularly small cap stocks were hit hard during June, with the broad market index, the S&P/ASX 200 Accumulation Index losing 8.8%. The best performing sector was Consumer Staples, which was the only sector in positive territory (up 0.21%), while Materials was the worst performing sector down 12.44%.
• Fixed income returns for the month were again poor, returning -1.5% domestically and -1.6% globally. This was the result of rising bond yields and widening credit spreads.
• The Australian dollar took a significant hit during the month of June versus the USD, losing 3.8% of its value. Interestingly, the AUD managed to gain 1.4% against the Yen, but lost 1.3% against the Trade-Weighted Index.

Inflation High, unemployment low

Globally

• June’s U.S. non-farm payrolls are expected to have slowed from the 390,000 added in May, but still show solid job growth and a strong labour market. According to Dow Jones, economists expect 250,000 payrolls were added in June and the unemployment rate to remain steady at 3.6%.

• In the U.S., for the year to 31 May 2022, the Consumer Price Index for All Urban Consumers increased 8.6%, the largest 12-month increase since the period ending December 1981. In summary, U.S. inflation is currently very high and broad-based.

Locally

• Both the June S&P Flash PMI and AIG Manufacturing Index were released indicating private sector growth continuing.
• Whilst the AIG Manufacturing Index trended higher, we remain cautious and believe growth will continue to slow throughout this year.
• The May labour force report, released in June, reported the unemployment rate unchanged from April at 3.9%.
•  Encouragingly, the underemployment rate decreased to 5.7%, and this is the lowest level since August 2008.
• The RBA Board increased the cash rate target by 50bps to 0.85% in June, the second consecutive monthly rise. Subsequently to the end of June, the RBA raised rates by a further 50bps to 1.35% on 5 July