RI Advice Monthly Market Update – July 2022

• 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.

Globally

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.

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