Market Wrap March

February: Inflation hits another 40 year high

• Global shares fell 2.8% and 5.5% in unhedged and hedged terms, respectively, which was a similar result to what we saw in January. Global emerging markets fell 5.8% over the month.
• Australian shares performed reasonably well during February, with the S&P/ASX 200 Accumulation Index gaining 2.1%. The leading sectors were Energy (up 5.81%) and Consumer Staples (up 5.57%). I.T. was again the worst performer (down 6.88%).
• Fixed income returns for the month were again very poor, returning -1.2% domestically and -1.3% globally.
• The Australian dollar (AUD) gained 2.8% against the US dollar, which basically offset last month’s loss. The AUD also gained 2.6% against the Yen and 2.2% against the Trade- Weighted Index.

Inflation and Tapering

Globally

• U.S. Inflation is showing no signs of slowing, as the Federal Reserve gets ready to raise rates.

• U.S. headline inflation hits another 40 year high in February at 7.9% year-on-year, the highest figure since January 1982. Core inflation is at 6.4%.
• Euro area annual inflation was expected to be 5.8% in February this year, up from 5.1% in January, according to a flash estimate from Eurostat.

Locally

• Consumer sentiment fell 4.2% month-on-month in March to

96.6 from 100.8 in the W-MI survey to be at its lowest level since September 2020.

• The details suggest the fall was driven by concerns around the Queensland and Northern NSW floods given the survey period (28 February to 4 March) and thus should rebound in time. Inflation concerns and the war in Ukraine are also likely to have been factors.
• There appears to be a growing disconnect between the markets’ expectations of interest rate rises and recent RBA guidance. Some markets are pricing in around eight 25-basis point interest rate rises by mid-2023, while the RBA Chairman has indicated there are more dangers from lifting interest rates too early, than holding them steady for longer.