After a difficult 2022, financial markets are slowly being convinced that inflation is beginning to settle, with attention now shifting towards the size of the economic downturn and the impact on earnings.
Although we have strong views on where markets are travelling over the next 3 to 5 years, the next 6 months could easily see markets swing by 10% - especially as the following thematics play out:
Energy remaining expensive
European unity continually being tested
Artificial intelligence likely to appear everywhere
Global recession risk will remain elevated
On the back of a horrible 2022, bonds are now back!
Inflation should begin to cool
The US will hit their debt ceiling in ~June which could result in a stalemate like 2011
Looking a little closer to home, based on recent data from CommSec’s State of the State report, Australian states and territories remain supported by strong job and commodity markets at a time of rising interest rates.
Queensland is Australia’s top-performing economy and has benefitted from strong relative and absolute population growth, a strong job market and buoyant overseas demand for energy resources, such as coal and natural gas. Tasmania is now in second position but there is little to separate the top two economies. South Australia has lifted from fifth to third with the lowest jobless rate on record.
Earlier this week the Government announced their intention to increase the superannuation concessional tax rate on balances over $3 million from 15 per cent to 30 per cent – a change designed to generate $2 billion in extra tax revenue every year. Fortunately, the proposal has to pass the usual parliamentary process and if legislated as announced, the change will not commence until 1 July 2025 – after the next Federal election