This month:

• As far as economic trends go, little has changed from last month. The RBA and the Fed have continued to raise rates, the hawkish rhetoric is unchanged and there is still no sign that either the RBA or the Fed will pivot anytime soon.
• Inflation remains elevated, although there are starting to be some signs that it may be starting to dissipate somewhat. While we could potentially be past the peak of inflation, expectations are that inflation will remain above central banks’ targets for the short to medium term.
• Interestingly, unemployment rates are still not consistent with previous recession scenarios. The US economy added 315K payrolls in August of 2022, compared to a downwardly revised 526K in July, but above market forecasts of 300K and pointing to broad-based hiring across many sectors. The unemployment rate in the Euro Area also continues to reduce, albeit, at a much slower rate. Australia’s job market continues to remain tight, as the unemployment rate hit a new record low of 3.4% in July beating expectations by 0.1%.
• The S&P 500 lost just over 4%, while the Australian S&P 200 rose by 0.6%. Growth and Quality stocks underperformed during August, which explains some of the difference between the two markets. I.T. is considered a growth sector and is underrepresented in the Australian market. This combined with Australian resources companies generating significant cashflows helped the Australian market outperform the U.S. market over August.
• Fixed income markets struggled again in August, with Government bonds both in Australia and globally being impacted by rising bond yields. It should be noted that a large proportion of forecast interest rate rises around the world are already priced into bond markets and therefore, unless further rate rises exceed current expectations, further impacts on bonds should be significantly less than what we have seen since the start of the year.

Read the full Monthly Economic Wrap prepared by IOOF Research here.