Economic Review

11 Jul

Economic Review

Global Equity Markets 
Global shares recorded sharp falls in June. High inflation, rising bond yields and interest rates, the Russia – Ukraine conflict and the emergence of recession concerns have driven share prices lower.

Wall Street recorded sharp declines with the S&P 500 falling by 8.3%. US consumer inflation remains persistently high with May recording an annual increase of 8.6%. Given this high inflation, the Federal Reserve (FED) accelerated the pace of raising interest rates with a 0.75% increase in June following the 0.5% hike in May. The FED also flagged further interest rate increases. US economic data is solid in terms of business conditions and employment. However, there are some cracks appearing with consumer confidence falling given inflation concerns and rising mortgage interest rates. This has led to some investors factoring in that a recession may be looming for the US economy.

European share markets also ended sharply lower given rising inflation and concerns that the Russia – Ukraine conflict was damaging both regional security and economic stability. European inflation reached multi-decade highs in May with the annual increase at 8.1%. The European Central Bank signalled that interest rates will start to rise in July given the rapid rise in inflation.

Asian share markets provided a mixed performance. The China Shanghai Composite Index provided a positive surprise with a strong 6.7% gain in June. There were some encouraging signs that China’s economic activity was starting to stabilise with improved results for industrial production and retail sales in May. Importantly the virus outbreaks in Shanghai and Beijing appear to be contained with some lifting in lockdown restrictions. The Japanese share market recorded a mild fall in June given continued central bank support for low interest rate settings and a weak currency..

Table 1: Global share market performance – June 2022
US S&P 500 -8.3%
US Dow Jones -6.6%
Euro Stoxx 50 -8.8%
German DAX -11.2%
UK FTSE 100 -5.5%
Japan Nikkei 225 -3.1%
China Shanghai Composite 6.7%
Source: Factset, financial data and analytics, June 2022

Australian share market review
Australian shares were weak in June with similar falls to their American and European counterparts. The ASX 200 recorded a sharp price fall of -8.8%. The financial and real estate sectors led the market declines given their sensitivity to rising interest rates. The resource sector also disappointed with a large fall given the slide in iron ore and metal prices. The only island in a sea of red ink was a small gain for the consumer staples sector given its perception as a ‘safe haven’.

The Australian Dollar (AUD) declined by 3.8% against the US Dollar (USD) during June to finish the month at USD 0.6904.

Table 2: Australian share market performance – June 2022
S&P/ASX 200 Accumulation Index -8.8%
S&P/ASX 200 Industrials Total Return Index -8.0%
S&P/ASX 200 Resources Total Return Index -10.6%
S&P/ASX Small Ordinaries Total Return Index -13.1%
S&P/ASX 200 A-REIT Total Return Index -10.3%
Source: Factset, financial data and analytics, June 2022

Large Caps (S&P/ASX100)
Tabcorp was the best performer in June (+14.5%) followed by Atlas Arteria (+12.1%) and Woodside Energy shares (+7.0%). Evolution Mining was the worst performer (-38.0%) followed by Block Inc (-28.2%) and Oz Minerals (-26.3%).

Listed property
The S&P/ASX 200 AREIT Total Return Index incurred a double-digit fall (-10.3%) in June, compared to the 8.8% decline in the S&P/ASX 200 Total Return Index. All sectors finished down. Industrial AREITs (-12.7%) again posted the biggest fall. Then followed Office AREITs (-12.0%), Diversified sector AREITs (-11.1%) and Retail AREITs (-7.2%).

Written 4 July 2022.

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