Market Scoop
As expected, the Reserve Bank board raised the cash rate by 25 basis points to 2.85% at its November meeting. This result was widely predicted by the market and analysist. Although interest rate rises are beginning to hurt borrowers, we are starting to see one year Term Deposit rates above 4% - a blessing for retirees.
Currently, the Australian economy is expanding at a pace in excess of 3%. The unemployment rate has declined to 3.5%, down from 5% in mid-2021, to be at the lowest level since 1974. With the economy bumping against capacity constraints, inflation pressures have intensified and are surprising to the high side. The RBA is responding to this inflation challenge, by rapidly raising interest rates from a low of only 0.1% at the start of May to 2.85% in November, with an expected peak of 3.85% in May 2023.
From a stock perspective, October saw significant improvements on exchanges in both Australia and the United States (albeit from a low base). Investment accounts with exposure to equities (shares) are beginning to show signs of improvement - a measure we expect to continue as we approach Christmas.
Unlike shares, property prices tend to move as a result of underlying demand and interest rates. As affordability to fund loan repayments becomes increasingly more difficult, we expect to see house prices continue to soften over the medium term. As it stands, Sydney leads the correction with 10% price falls being recorded since January 2022. Fortunately, Adelaide and Perth have remained resilient, however, weakness is beginning to show.
2022 has been a testing year for many. As inflation is currently over 7%, selling high quality assets in favour of cash can be fraught with risk through a true devaluation of savings. Fortunately, as markets remain volatile, we are beginning to see new opportunities. Synergy Private Wealth
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