Macro Articles

In the words of John Kenneth Galbraith, ‘We have two classes of forecasters: those who don't know, and those who don't know they don't know.’ You’d be forgiven for believing we are already in the midst of a recession given the amount of bearish economic commentary in recent months. However, at least in nominal terms, the Australian and global economies have continued to grow despite sharply higher interest rates—and it is nominal growth that matters most to equity markets. With the end of the year fast approaching, it’s timely to consider the 2024 economic outlook—and one particular economic forecast that stands out as vulnerable to being wrong as we approach the new year…

It’s been a challenging year for most investors with sharply higher interest rates leading to significant underperformance in asset classes which used to be regarded as defensive such as government bonds. The rules of the game have been turned on their head.

The recent Australian Consumer Sentiment Snapshot reveals Aussie consumers have one particular economic factor front of mind… inflation. The inflation monster is impacting upon consumers’ disposable incomes, and more importantly it’s causing havoc in consumers’ minds where it’s doing most of its insidious work. It’s this growing awareness and fear of inflation which suggests we may be on track for inflation to trend higher than markets (and central bankers) currently believe. If that is indeed the case, the investment implications are significant…

The economic news from China is getting worse. From deflation to falling exports, high unemployment, and a debt-laden property sector, the global economic powerhouse is facing significant challenges. Clearly, these growing economic challenges are bad news for the many ASX-listed stocks exposed to China.

When US Fed chairman Jerome Powell admitted last year, ‘We now understand better how little we understand about inflation,’ it confirmed what many investors suspected…inflation is a more complex beast than most people, including central bankers, realise.

You may have heard the classic joke about economists… Economists were created to make weather forecasters and astrologers feel better about the accuracy of their predictions. US economists have certainly lived up to this stereotype of late. There’s rarely been a period when economists have been more wrong-footed by a strengthening economy.

If you’ve been following the financial news closely, you've probably heard analysts warn of the risks facing consumer discretionary stocks due to the looming retail slump. Those risks are now manifesting as Australia is in the midst of a consumer recession with three consecutive quarters of declining retail turnover. So the post-covid retail honeymoon is over—and consumers are opting for value-driven choices as the tailwinds provided by the excess savings accumulated during Covid wane.

The world of yield investing has been through a dramatic transformation in recent months as central bankers have raised rates at an unusually aggressive pace. Equity and bond markets have fast adapted to this new world order, but what happens if the current yield split between equities and bonds doesn’t apportion risk fairly?

If you follow the financial news closely, you may be tired of hearing about the RBA’s incessant rate rising and the resulting tales of woe around the country. It sometimes feels like interest rates are monopolising the airwaves at the expense of everything else. But what if hearing the words, “The RBA raises rates yet again,” were to inspire joy in your world (or at least indifference) rather than dread?

Throughout 2022, investors were reminded by a number of market experts that most commodities were in chronic undersupply. “Buy the chemical table”, was the advice given by more than one strategist who believed we were at the start of a new commodities supercycle.

Most of the world’s great investors are experts at using market sentiment to their advantage. “It is wise for investors to be fearful when others are greedy, and greedy when others are fearful.” Warren Buffet Whilst it’s tempting for investors to be confident they understand market sentiment based upon market volatility and direction, there’s a simpler, more accurate, and often over-looked way to gauge market sentiment.

Economic forecasts are rarely accurate. Any Federal Treasurer will tell you that. Just four years ago, then-Treasurer Josh Frydenberg forecast a surplus of $7.1 billion for 2019/20. After paying for the unexpected impacts of bushfires and the Covid crisis, that predicted surplus turned into an $85 billion deficit.