In today’s society, the notion of wealth extends beyond financial resources. As individuals seek a more balanced and fulfilling life, the concept of wealth has evolved to encompass various factors such as education, healthcare, job satisfaction, and social connections. This article explores the changing perception of wealth in contemporary Australia and highlights the importance of holistic well-being in defining prosperity.
The investment technique known as ethical investing prioritises the investor’s moral, religious and social ideals over financial gain. This is because a growing number of investors have begun to demand social responsibility from the companies they invest in, primarily because of the rise in dubious and unlawful investment arrangements.
Data source: Bloomberg & Financial Express. Returns greater than one year are annualised.
Commentary regarding equity indices below references performance without including the effects of currency (unless specifically stated).
The S&P/ASX 200 Accumulation Index fell 0.7% in August, as earnings results dampened market returns. Of the 11 sectors, only Consumer Discretionary (+5.7%), Property (+2.3%) and Energy (+0.5%) had positive returns for the month, while Utilities (-3.9%) and Consumer Staples (-3.2%) were the biggest drags on the Index.
Share prices battled with a combination of mixed earnings results and a conservative outlook for companies, while soft economic data out of China continued to weigh on local investors.
Consumer Discretionary was the standout performer for the month, benefiting from resilient consumers. Given the continued strain on households through a higher cost-of-living, many companies in the sector had flagged headwinds in the months leading into reporting season, with a conservative outlook already baked into share prices. Another theme to emerge from earnings reports is the ability for companies to manage cost pressures, particularly those brought about through higher financing rates. Despite revenue growth, Consumer Staples reported disappointing profit results, leading to their waning share prices. More broadly, the sustained impact of a slowing Chinese economy was seen across the market, particularly Materials.
The month saw all Factors perform negatively. Enhanced Value (-3.1%) and Low Volatility (-2.5%) were the worst performing factors, while Growth was able to limit its losses (-0.4%).
Primarily negative economic data in August resulted in a rise in bond yields and a decrease in equity markets. With renewed investor concerns, US equities stumbled with the S&P500 Index declining -1.6% (in local currency terms) during the month.
Most sectors across Europe fell, with the DAX 30 Index returning -3.0% (in local currency terms) for the month. Energy was one of the sole positive contributors, inflation has remained stable but is yet to decline below previous months’ levels. The European Central Bank’s next meeting will be a watchpoint for investors.
China experienced some of the sharpest declines for the month with a potentially challenged real estate sector. Investor concerns around stimulus deployment largely contributed to this decline, with the CSI 300 Index returning -6.0% for the month (in local currency terms). In Hong Kong, stocks fell sharply with weaker manufacturing and real estate market concerns in surrounding markets. This was reflected in the Hang Seng Index returning -8.2% for the month (in local currency terms).
The S&P/ASX 200 A-REIT Accumulation Index finished +2.3% higher in the month of August as the A-REIT sector continued its consolidation in recent months. In contrast, the Global Real Estate Equities market (represented by the FTSE EPRA/NAREIT Developed Ex Australia Index (AUD Hedged) finished lower (-2.7%). The Australian Infrastructure sector (as represented by the S&P/ASX Infrastructure Index) finished -2.8% lower.
In the month of August, M&A activity was relatively muted as companies reported their full year results. Abacus Group (ASX: ABG) officially completed its de-stapling from Abacus Storage King (ASX: ASK). Ingenia Communities Group (ASX: INA) extended their development partnership with Sun Communities for an additional seven years. Meanwhile, Goodman Group (ASX: GMG) reported that Senko Co Ltd. signed a major lease agreement at their Goodman Joso location in Japan. The Australian residential property market experienced an increase by +0.1% Month on Month (as represented by CoreLogic’s five capital city aggregate). Brisbane was the biggest riser (+1.5%), followed by Adelaide (+1.1%). Over the one-year period, Perth was the largest gainer (+4.5%). In contrast, Hobart (-0.1%) was the only city to deliver negative returns in the month of August. Similarly, Hobart has the lowest percentage change year on year (-10.0%).
In their August meeting, the Reserve Bank of Australia have for the second time elected to pause rate hikes and leave the target cash rate at 4.10%, citing slowing economic growth and pressure on household budgets. The Australian bond market reacted mildly, with Australian 2- and 10- Year Bond yields falling 23bps and 3bps respectively over the course of the month.
The Australian yield curve continued to flatten throughout August, and the Bloomberg AusBond Bank Bill Index returned 0.37%. Markets are expecting a similar story in September, with the RBA expected to hold rates steady next month. RBA Governor Philip Lowe’s tenure will soon end, and the position will be headed by his deputy Michele Bullock.
In the US, the Federal Funds Rate remains at 5.25%- 5.50% following the most recent July rate hike, with the Fed’s first-rate cut being priced into futures contracts by March 2024. The Bloomberg Barclays Global Aggregate Index (AUD) returned 2.62% over the month, and US 2- and 10-Year Treasury yields rose 1bp and 15bps respectively. In the UK, the interest rate is at 5.25% after the BoE hiked by 25bps in their August 2 meeting, resulting in UK Gilt yields rising over the month.
Australian GDP came in slightly above expectations, increasing at an annual rate of +2.1% for the 12 months to June, despite very weak household consumption.
GDP growth has slowed from +2.4% to March, consistent with the RBA’s forecast for a continued softening of the domestic economy into the end of this calendar year before a gradual recovery through 2024 and 2025.
The RBA left the cash rate at 4.1% in August, reiterating that inflation was still too high and further tightening may be needed to bring inflation back to its target range of 2-3%. Inflation unexpectedly eased down to 4.9% in July, led by falling prices for fresh produce and fuel.
Westpac-Melbourne Institute Index of Consumer Sentiment came in at 81.0 in August, ahead of expectations of 80.7 with the RBA’s decision to hold rates steady for a second month in a row, doing little to quell worries about higher borrowing costs. The unemployment rate rose to 3.7% in July, above the expected 3.6% and underscoring the RBAs prediction that the labour market is near a turning point. Retail sales increased by 0.5% in July, topping market estimates of 0.3%, while annual sales rose 2.1%.
The composite PMI edged down to 48 in August, with services activity falling at a faster pace than manufacturing output. The NAB business confidence index rose to 2 in July with wholesale, construction and recreation & personal services accounting for most of the upswing.The trade surplus narrowed to $8.04 billion in July, below market forecasts of $10 billion.
Record temperatures in August drove food prices higher with soybeans, olive oil and rice just three of the products affected by shortages and price hikes. While seasonal price fluctuations are usual, the exceptionally hot and dry summer experienced in the northern hemisphere has caused poor harvests and many crops to fail.
The war in Ukraine also continues to impact the global food supplies, as the UN brokered deal for safe passage of Ukrainian grains via the Black Sea collapsed, with Russia pulling out of the agreement. While some grain is still being exported via inland rivers, it takes longer and is more expensive than via sea.
The US economy grew at an annualized rate of 2.1% in 2Q23, ahead of the first quarter’s expansion of 2.0%. Annual inflation rose to 3.2% in July, just shy of the expected 3.3%.
The US economy added 187,000 jobs in August, more than market expectations of 170,000. This is the third month of sub 200,000 jobs growth and coupled with the increase in unemployment to 3.8%, suggests that the year of successive rate rises by the Fed is working to get inflation under control and avert a recession.
Consumers remain tentative about the outlook ahead with consumer sentiment falling from 71.6 in July to 69.5 in August. Retail sales in July increased 0.7%, beating the 0.4% forecast, with the annual rate increasing 3.2%. The S&P Global Composite PMI fell to 50.4 in August, with services activity weak and the contraction in manufacturing deepening.
The trade deficit widened less than expected to US$65 billion in July, from a downwardly revised US$63.7 billion in June, with China accounting for US$24 billion of this figure.
The Eurozone economy grew by 0.6% in 2Q23, easing from a 1.1% expansion in the previous period, due to the large drop in real incomes and surging interest rates.
Annual inflation remained steady at 5.3% in August, above the expectations of 5.1%. Unemployment stayed at the record low of 6.4% for July, matching the market forecast.
Consumer confidence dropped to -16 in August, as households were more pessimistic about both their own and the wider economic outlook.
Retail sales dropped 0.2% in July, below market expectations of – 0.1%, with the annual rate down 1.0%, ahead of the anticipated -1.2%.
The Composite PMI dropped to 46.7 in August, with the biggest contraction in services activity since November 2020. PPI dropped 0.5% in July, broadly in line with expectations, with the annual rate falling 7.6%. This can be attributed to the decrease in energy prices.
The Bank of England increased the cash rate by 25bps to 5.25% in August, the 14th consecutive rise. The Bank came under renewed pressure to raise interest rates again in September after wages jumped more than expected in June, boosted by a one-off payment to NHS workers.
Annual inflation slowed to 6.8% in July, matching market expectations, mainly due to a sharp fall in fuel prices. This was mirrored in the annual PPI which fell be 0.8% in July, below the market expectations.
The unemployment rate increased to 4.2% in June and above market expectations of 4.0%.
Consumer confidence rose to -25 in July as easing inflation reduced pressure on household spending sentiment. Retail sales fell 1.2% in July 2023, worse than market forecasts of a 0.5% fall, as sales declined for both food and non-food, reflecting the impact of wet weather and cost pressures. Annual sales fell 3.2%, compared to the expected -2.1%.
The composite PMI index fell to 48.6 in August with both services and manufacturing activity declining.
In China, the unemployment rate rose to 5.3% in July, up from June’s 16 month low of 5.2%.
Annual Retail sales grew 2.5% in July, down from 3.1% in June and falling short of expectations. Both consumer and business confidence are flagging as the post pandemic recovery has stalled and many believe that policymakers have fewer good options to fight the downturn than in the past.
The Caixin/S&P Global Services PMI fell from 54.1 in July to 51.8 for August, the lowest reading since pandemic lockdowns in late 2022. The Composite PMI declined to 51.7, adding to the recent series of negative signals for the country’s future demand for Australian mining commodities.
China lifted anti-dumping tariffs on Australian barley in a move that points to improving bilateral relations and would alleviate supply concerns after Russia suspended a humanitarian corridor used to deliver key Ukrainian grains to global markets.
Japan’s 2Q23 GDP was slightly below expectations, coming in at 1.3% for the quarter, which may give further justification for the BOJ to relax its monetary stimulus.
The annual inflation rate was unchanged at 3.3% in July, notably higher than the market forecast of 2.5%.
The unemployment rate rose unexpectedly to 2.7% in July, defying market forecasts of no change from 2.5% in June.
The consumer confidence index dropped to 36.2 in August, below forecasts of 37.5. Retail sales rose 2.1% in July, with the annual rate rising 6.8%, exceeding forecasts.
The composite PMI came in at 52.6 in August with the fastest rise in services activity in three months offset by weakness in manufacturing production.
The Australian dollar (AUD) continued to descend over the month of August, closing -1.1% lower in trade weighted terms to 60.6, depreciating against all four referenced currencies in this update.
Volatility over the course of the month continued to be primarily influenced by weaker economic indicators from China, further eroding investor conviction in China’s growth trajectory. In addition, relative US dollar strength predominantly stemming from the appreciation of the USD/CNY mid-month added additional drag to the AUD.
Relative to the AUD, the US dollar (USD) led the pack in August, appreciating by 3.8%. Conversely, the Japanese Yen (JPY) was the laggard of the month, albeit appreciating in relative terms by 1.5% against the AUD. Year-on-year, the AUD remains behind the Pound Sterling (GBP), Euro (EUR) and USD by -13.4%, -12.5% and -5.6% respectively, and has now fallen behind the JPY by -1.0%.
Ensuring you’ve structured your finances tax-effectively is always a concern, but with new tax rules for super on the horizon, many people with large balances are considering alternative vehicles to save for retirement.
If you’re lucky enough to have received a windfall, perhaps an inheritance or a retrenchment payout, your first decision will be what to do with it.
Data source: Bloomberg & Financial Express. Returns greater than one year are annualised.
Commentary regarding equity indices below references performance without including the effects of currency (unless specifically stated).
The S&P/ASX 200 Accumulation Index finished July up 2.9%, the second-best monthly performance for the index this year. Commodity price rises aided the gains, while consumer sentiment has improved with positive inflation and employment data releases. Energy (+8.8%), Financials ex-Property (+4.9%), Information Technology (I.T.) (+4.5%) and Utilities (+4.0%) led Sectors. In all, 9 of the 11 Sectors in the Index finished positively, with Health Care (-1.5%) and Consumer Staples (-1.0%) the only laggards.
The driving factor in Energy names was rising commodity prices, particularly oil. This was evident in the gains Woodside (ASX: WDS), whose stock also benefitted from a quarterly update that was received positively by investors. Meanwhile, the other monthly leader, Financials ex-Property, saw investors pile into the “Big 4” banks, which all had strong months in July. While the RBA has left rates on hold, the banks have continued to increase their rates for home loan borrowers. Investors expect the rate rises from the lenders to ease competition and lead to higher net interest margins.
The month saw all Factors perform positively, led by Enhanced Value (+6.3%), Shareholder Yield (+5.5%) and Quality (+4.1%).
Global equities ended in a predominantly positive month with stabilising economic data. Emerging markets outperformed developed market counterparts returning 4.9% (MSCI Emerging Markets Index (AUD)) versus a 2.1% gain according to the MSCI World Ex Australia Index (AUD).
The U.S. markets had mixed results again, with inflation data falling in line with another expected rate hike. Most sectors were positive with standouts in Technology and Energy rising largely due to increased strength in suppliers. The S&P500 Index posted a gain of 3.2% (in local currency terms).
Emerging markets rallied strongest for the month, as China’s economic growth recovery plan continues, with new stimulus having positive effects across sectors; specifically manufacturing and real estate as indicated by development data. The CSI 300 Index returned 5.3% for the month (in local currency terms).
The S&P/ASX 200 A-REIT Accumulation index advanced during July, with the index finishing the month 3.8% higher. Global real estate equities (represented by the FTSE EPRA/NAREIT Developed Ex Australia Index (AUD Hedged)) also finished strongly, advancing 3.2% for the month. Australian infrastructure performed well during July, with the S&P/ASX Infrastructure Index TR advancing 4.1% for the month and up 13.2% YTD.
July was relatively quiet across the A-REITs sector. Some activities include Abacus Property Group (ASX: ABP) successfully completing the retail offer of their Abacus Storage King (ASX: ASK) REIT. This offer raised gross proceeds of approximately $34m which follows the institutional component last month that raised $191m. Charter Hall Retail REIT (ASX: CQR) announced the sale of their Bricksworth Marketplace, SA property for $85m representing a 6.1% premium to book value.
The Australian residential property market experienced an increase of +0.9% Month on Month (as represented by CoreLogic’s five capital city aggregate). Brisbane and Adelaide were the biggest movers (both +1.4%) with Perth (+1%) also performing strongly. All five capital cities performed positively for the third consecutive month.
In its July meeting, the RBA decided to leave the cash rate on hold at 4.1%, pausing what has been an aggressive rate hiking cycle. The market responded with Australian 2-Year and 10-Year bond yields remaining elevated and rising by 4bps and 5bps respectively. Fixed income markets started to see some gains, with the Bloomberg AusBond Composite 0+ Yr Index returning 0.5% over the month.
In the US, bond markets continue to price the possibility of a recession and the US yield curve is inverted. The Federal Reserve raised rates in July by 25bps lifting the benchmark rate to 5.25-5.5%, which is the highest this range has been in 22 years. The market responded with US 10-Year and 2-Year Treasury yield rising by 15bps and 9bps respectively. US annual inflation for the year to June 2023 lowered to 3%. Globally, higher yields led to losses in fixed income markets, with the Bloomberg Barclays Global Aggregate Index (AUD) returning -0.5% over July.
The RBA left the cash rate at 4.1% in its July meeting with the Board saying that it needs more time to assess the impact of past hikes. Annual inflation dropped to 6% in Q2, below the forecast 6.2%, primarily driven by a slowdown in goods inflation (5.8%). Services inflation came in at 6.3%, the highest rate since 2001.
The Westpac-Melbourne Institute Index of Consumer Sentiment for June rose by 2.7% to 81.3. Although the reported fall in inflation appears to have boosted confidence, the index remains in deeply pessimistic territory.
The unemployment rate eased to 3.5% in June, against the expected 3.6%. Retail sales in June declined 0.8% as cost-of-living pressures continued to weigh on consumer spending. Conversely, annual sales rose 2.3%, down from +4.2% the previous month.
The Composite PMI fell to 48.2 in July amid a renewed contraction in the service sector as interest rate rises hit customer confidence and budgets. The NAB business confidence index rose to 0 in June but shows warning signs of growth. In trend terms, confidence is weakest in retail and is also negative in wholesale and recreation & personal services, reflecting concerns about the outlook for consumption.
The trade surplus widened to $11.32 billion in June from a downwardly revised $10.49 billion in May, beating market forecasts of $11 billion.
The International Monetary Fund (IMF) slightly raised its global GDP growth estimates for 2023 to 3%, however it continues to warn about persistent challenges over the medium term. The latest World Economic Outlook from the IMF points to reduced inflation as a factor in the improved outlook for 2023 but has kept its 2024 forecast unchanged – both standing at +3%.
India is expected to have the world’s highest growth rate this year at 6.1%.
The IMF also forecasts that global headline inflation will drop to 6.8% for 2023, down from 8.7% last year, with inflation predicted to fall to 5.2% next year. However, core inflation is likely to drop more slowly and not back in line with national targets until late 2024 or early 2025.
The Federal Reserve raised the cash rate by 25bps to 5.50% in its July meeting, bringing borrowing costs to the highest levels since January 2001.
Inflation rose 0.2% in June, slightly below the 0.3% the market expected, with the annual rate slowing to 3.0%.
Non-farm payrolls added only 187,000 jobs in July, below the forecast 200,000. The unemployment rate dropped to 3.5% in May, below the market expectation of 3.6%. This jobs data is largely supportive of the soft-landing narrative and is unlikely to influence Fed expectations. Consumer Confidence continued its bounce back, rising to 117.0 in July and likely reflecting lower inflation and a tight labour market.
Retail sales in June increased 0.2%, below the expected 0.5% with the annual rate increasing by 1.5%. The S&P Global Composite PMI declined to 52.0 in July, dragged down by slower service sector growth.
The trade deficit narrowed to US$65.5 billion in June, with China trade accounting for US$22.8 billion of this figure.
In July the European Central bank raised the key interest rate by 25 bps to 4.25%, citing persistently high inflation. At the same time, the annual inflation rate dropped to 5.3%, in line with market estimates.
Unemployment dropped slightly in June to 6.4, just under the market forecast.
Consumer confidence rose to -15.1 in July, the highest rate since February 2022. Retail sales dropped 0.3% in June, missing market expectations of + 0.2%. The annual rate was down 1.4%, ahead of the anticipated -1.7%.
The Composite PMI dropped to 48.9 in July, as new business inflows fell the most in eight months and backlogs of work dropped at the steepest rate in ten years. PPI dropped 0.4% in June, double the market expectations, with the annual rate falling 3.4%, against the forecast -3.1%. These drops were primarily driven by the decrease in energy costs.
Europe is counting the cost of fires across Greece, Spain and Portugal, as a ‘heat dome’ across the southern half of the continent led to the hottest temperatures on record.
There was no meeting of the Bank of England in July, so the cash rate remained at 5.0%. Annual inflation slowed to 7.9% in June, the lowest level in a year. Inflation remains well above the 2% target rate and therefore, the Bank of England is expected to raise rates at its next meeting in early August.
Annual PPI fell by 2.7% in June, more than the market forecast of -1.6%.
The unemployment rate rose to 4.0% in May, above market expectations of 3.8%.
Consumer confidence fell to -30 in July as persistent inflation and rising interest rates weigh on sentiment. Retail sales rose 0.7% in June, above the anticipated 0.2%, boosted by summer sales and good weather.
Annual sales fell 1%, above the expected -1.5%.
The composite PMI index fell to 50.8 in July, mainly due to a sharp fall in manufacturing orders.
The Chinese economy expanded by 6.3% year-on-year in Q2 2023, faster than the 4.5% of the previous quarter but falling short of market estimates of 7.3%. The latest figures are distorted by a low base of comparison from last year when Shanghai and other major cities were under strict lockdowns.
The unemployment rate was unchanged at 5.2% in June, in line with market forecasts and below the government target rate of 5.5%.
Annual retail sales increased by 3.1% in June, below the forecast 3.2%, as sales for clothing, footwear and textiles slowed considerably.
Composite PMI fell to 51.9 in July, with manufacturing contracting for the first time in three months and services activity expanded at a slower pace.
China was hit hard by extreme weather in July from record-breaking heatwaves to deadly rain, with at least 20 people killed and 31,000 evacuated in Beijing due to severe flooding.
As expected, the Bank of Japan kept its key short-term interest rate unchanged at -0.1% and that of 10-year bond yields at around 0% in its July meeting. The Bank also made a surprise move by making its yield curve control policy more flexible in an effort to improve the sustainability of stimulus policy.
The annual inflation rate increased slightly to 3.3% in June, below the forecast 3.5%.
The unemployment rate came in at 2.5% in line with expectations and improving from a prior reading of 2.6%.
The consumer confidence index rose above forecasts to 37.1 in July, as the economy further recovered from pandemic disruptions. Retail sales fell 0.4% in June, with the annual rate rising 5.9%, which matched forecasts.
The composite PMI came in at 52.2 in July mainly underpinned by a solid expansion in the services sector. Factory activity remains subdued with both output and new orders falling.
The Australian dollar (AUD) fell over the month of July, closing -0.7% lower in trade weighted terms to 61.3.
Key volatility drivers over the month of July included weaker than expected CPI and PPI data releases in the US, bolstering spirits that the Fed may be approaching its final rate hike for the cycle. In addition, softer Q2 CPI data released domestically caused the AUD to retreat on gains made earlier in the month.
Relative to the AUD, the Japanese Yen (JPY) led the pack in July, appreciating by 0.6%. Conversely, the US dollar (USD) was the laggard of the month, falling by – 0.9% relative to the AUD. Year-on-year, the AUD remains behind the Euro (EUR), Pound Sterling (GBP) and USD by -10.6%, -8.9% and -3.7% respectively, and remains ahead of the JPY by 2.6%.
Data source: Bloomberg & Financial Express. Returns greater than one year are annualised.
Commentary regarding equity indices below references performance without including the effects of currency (unless specifically stated).
The S&P/ASX 200 Accumulation Index finished June up 1.8%. Materials led all sectors, finishing up 4.8%.
Information Technology (I.T.) rose again (+3.5%), with Financials (+3.1%), Utilities and Consumer Staples (both +2.9%) also posting healthy gains. Health Care (-6.6%) fell significantly, dragged down by an announcement from its largest constituent, CSL, that forthcoming foreign currency headwinds were expected to be higher than previously estimated. Despite an extensive list of economic headwinds, the Index finished the Financial Year up 14.8%.
I.T. shares continued to ride the artificial intelligence (AI) wave and followed the gains that were seen globally in the sector; through the Financial Year it led all sectors, gaining 38%.
Chinese data releases solidified the weakening activity there and led to action to further stimulate the economy, helping Materials to lead the month. Meanwhile, a tight labour market and sticky inflation have seemingly increased the likelihood of further RBA cash hikes, mitigating the gains in those sectors sensitive to interest rates.
Global equities had another positive month, while emerging markets underperformed developed market counterparts returning 0.9% (MSCI Emerging Markets Index (AUD)) versus a 3.1% gain according to the MSCI World Ex Australia Index (AUD).
The U.S had one of its better performances of the year, driven in part by the Federal Reserve holding interest rates steady for the first time in over 12 months. This was supplemented with sustained strides in the technology sector. Large caps led a gain of 6.6% in the S&P500 Index (in local currency terms).
Equities across Asia were relatively strong, Japanese stocks continued to rally with sound economic data around production levels across industries. The Nikkei 225 Index reached new highs again with a gain of 7.6% for the month (in local currency terms) despite potential concerns around inflation and yield curve control.
China’s economic growth recovery efforts see optimistic levels of manufacturing and industrial production, with the Central Bank releasing cuts to lending rates. This was reflected by the Hang Seng Index and the CSI 300 Index, returning 4.5% and 2.1% respectively (in local currency terms) for the month.
The S&P/ASX 200 A-REIT Accumulation index was relatively neutral in June finishing the month 5bps lower. Global real estate equities (represented by the FTSE EPRA/NAREIT Developed Ex Australia Index (AUD Hedged)) performed strongly, returning 3.2%, driven by a surge in the office sector (+10.4%), following a positive reception of a New York transaction. Australian infrastructure continued its positive momentum during June, with the S&P/ASX Infrastructure Index TR advancing +0.6% for the month.
The Australian residential property market experienced an increase by +1.3% Month on Month (as represented by CoreLogic’s five capital city aggregate). Sydney was the biggest riser (+1.8%) alongside Brisbane (+1.4%) also performing strongly. All five capital cities performed positively for the second consecutive month.
For the first time in over a decade the Australian yield curve has inverted, with growing market concern around the possibility of a recession. The RBA continues to tighten monetary policy and has lifted the cash
rate by 25bps in its June 6 meeting, bringing the target cash rate to 4.1%. The cash rate is now 375bps higher than what it was 12 months ago. The market responded with Australian 2-Year and 10-Year bond yields rising by 66bps and 68bps respectively, their highest levels in a decade. Higher yields led to losses in fixed income markets, with the Bloomberg AusBond Composite 0+ Yr Index returning -1.95% over the month.
In the US, the Federal Reserve voted to maintain the May federal funds rate of 5%-5.25%. Despite the reprieve of a rate hike, fixed income markets fell, and US 10-Year and 2-Year Treasury yields rose by 49bps and 41bps, respectively. Globally, fixed income markets performed largely the same with the Bloomberg Barclays Global Aggregate Index (AUD) returning – 2.79% over June. Yield curve inversion seems to be a major trend with looming threats of further rate hikes, weak consumer confidence, and recession.
The RBA unexpectedly raised the cash rate by 25bps to 4.1% at its June meeting, while keeping the door open for further tightening as inflation remained persistently high and wage growth picked up. This decision brought a total of 4% increases since May 2022, pushing the cash rate to its highest level since April 2012. The Westpac-Melbourne Institute Index of Consumer Sentiment for May rose to 79.2, with the index at near recession lows for the past year.
May’s monthly headline inflation figure came in at 5.6%, well above the RBA’s targeted 2% to 3% range, but still the smallest increase since April last year. The unemployment rate eased down to 3.6% in May, against the expected 3.7%, as 76,000 jobs were added. Retail sales for May rose by 0.7%, above the market expectations of 0.1%, reflecting some resilience in spending with consumers taking advantage of larger- than-usual promotional activity and sales events. This is also reflected in the 4.2% rise in the annual rate.
Composite PMI fell to 50.1 in June, with domestic demand driving new orders driven. The NAB business confidence index dropped 4 points to -4 in May, with declines in all industries except mining, manufacturing, and transport and utilities.
The trade surplus increased to $11.79 billion in May, above the market forecasts of $10.5 billion as exports to China grew 9% month on month.
The World Bank and OECD both released updated growth forecasts for the remainder of this year and 2024. The World Bank increased its global growth forecast for 2023 to 2.1%, up from the earlier 1.7%, with the OECD increasing its estimate marginally to 2.7%. For 2024, the OECD estimate is unchanged at 2.9%, however the World Bank cited central bank monetary tightening and increasingly restrictive credit conditions for its decision to cut its estimate from 2.7% to 2.4%.
The Federal Reserve maintained the cash rate at 5.25% in its June meeting with officials suggesting that it may raise rates further this year.
Inflation rose 0.1% in May, slightly below the 0.2% market expected, with the with the annual rate dropping to 4.0%.
Non-farm payrolls added only 209,000 jobs in June, below the forecast of 225,000 jobs. The unemployment rate rose to 3.7% in May, above the market expectation of 3.5%. Consumer Confidence increased markedly to 109.7 in June, reflecting belief that labour market conditions will remain favourable and that there will be further declines in inflation, Retail sales in May increased 0.3%, well above the expected -0.1% with the annual rate increasing 1.6%. The S&P Global Composite PMI fell to 53.2 in June.
The trade deficit narrowed to US$69 billion in May on the back of a fall in imports.
In June the European Central bank raised the key interest rate by 25 bps to 4.0%, citing persistently high inflation. Christine Lagarde, ECB President, noted that with wage growth pressuring inflation, the bank needs to bring interest rates into sufficiently restrictive territory and therefore is likely to increase rates again in July. The annual inflation rate dropped to 5.5% in June, slightly below market expectation of 5.7%. Core inflation increased to 5.4%, supporting the view that policymakers are likely to continue raising rates in the upcoming months. Unemployment was flat at 6.5% in May, meeting market expectations and indicating a tighter labour market.
Consumer confidence rose to -16.1 in June, the highest rate since February 2022. Retail sales for May came in flat, against expectations of 0.2% The annual rate was down 2.9%, below the anticipated -2.7%.
The Composite PMI dropped to 49.9 in June, signaling a slowing of economic activity due to a deepening downturn in factory output and softer expansion in services. PPI dropped 1.9% in May compared to the expected -1.8%, with the annual rate falling 1.5%, against the forecast -1.3%. This drop in process was primarily driven by the decrease in energy costs, which fell 5% in the month.
The Bank of England increased interest rates by a surprise 50bps to 5.0% in June in response to stubbornly high inflation. Policymakers have also flagged further hikes if the ongoing inflationary pressures persist.
Annual inflation was steady at 8.7% in May, above the expected 8.4% and remains the highest level of the G7.
The unemployment rate came in at 3.8% in April, below market expectations of 4.0% and a prior reading of 3.9%. Consumer confidence rose to -24 in June, better than the expected -26 as households grew more optimistic about their finances and the economy. Retail sales rose 0.3% in May, with the annual rate falling 2.1%, below the expected -2.6%.
The composite PMI index fell to 52.8 in June, missing market expectations and aligning with Europe wide trend of steady services growth offsetting the accelerated slump in manufacturing.
Annual PPI fell sharply to 2.9%, below the expected 3.6%, due mainly to the continued fall in petroleum prices.
Annual inflation was unexpectedly flat in June, compared to an expected 0.2% increase.
The unemployment rate was unchanged at 5.2% in May, in line with market forecasts and below the government target rate of 5.5%.
Annual retail sales increased by 12.7% in May, below the forecast 13.6% and well down on the record increase of 18.4% in April.
Composite PMI fell to 52.5 in June, with the services sector continuing its post COVID rebound but at a slower pace than previous months. Manufacturing activity decline for a third straight month as demand falters both in China and abroad.
China’s economy grew faster than expected in the first quarter largely due to a strong post-COVID rebound in consumption, but policymakers have been unable to sustain the momentum in the second quarter. The government is expected to announce more stimulus measures, but these are likely to be smaller and more targeted as concerns over debt and capital flight remain.
As expected, the Bank of Japan kept its key short-term interest rate unchanged at -0.1% and that of 10-year bond yields at around 0% in its June meeting by unanimous vote. This approach is in sharp contrast to other major central banks who have raised borrowing costs to decade highs.
Referencing the economy as a whole, the board expects output to recover toward the middle of FY 2023, supported by pent-up demand.
The annual inflation rate unexpectedly declined to 3.2% in May, below the forecast 4.1%.
The unemployment rate was flat at 2.6% in May, in line with market forecasts.
The consumer confidence index rose to 36 in June, matching forecasts, and is the highest reading in 18 months. Retail sales increased 1.30% in May, with the annual rate rising 5.7exceeding the market forecast of 5.4%.
The composite PMI fell to 52.1 in June, with softer expansion in services and the eleventh fall the past year for manufacturing.
The Australian dollar (AUD) gained ground over the month of June, closing 3.2% higher in trade weighted terms to 61.7, appreciating against all four referenced currencies in this update.
June found itself filled with mixed signals for the market, volatility primarily being influenced of the course of the month by an assortment of both positive and negative economic data releases from China and the US, amongst disparate signals from the RBA on monetary policy and the status of the rate hike cycle.
Relative to the AUD, the Euro (EUR) led the pack in June, depreciating by -0.5%. Conversely, the Japanese Yen (JPY) was the laggard of the month, falling by -6.4% relative to the AUD. Year-on-year, the AUD remains behind the Pound Sterling (GBP), EUR and US dollar (USD) by -7.5%, -7.4%, and – 3.6% respectively, however is now ahead of the JPY by 2.5%.
The thought of retirement is an enticing one for many of us. Imagine throwing off the shackles of the workforce and being able to do whatever you want, whenever you want. But why wait until you are retired to do the things you love?
Retirement is a time where we finally have the space to do what we want to do with our lives, whether that’s travel, developing and learning new skills, taking up hobbies or just enjoying the company of those we care about.
The problem with waiting until we are retired is we are postponing engaging in things that could be making us happy right now. Exploring what gives us joy now and developing those skills will make for a much easier transition as you wave goodbye to your working years.
Retirement represents a big shift in the way we live our lives and it’s not uncommon for that adjustment to be a little challenging. For many, our jobs give us a profound sense of identity and define how we perceive ourselves, so our sense of self can suffer when we leave the workforce. There is also often a gap in our lives where work used to be.
That’s why rather than looking forward to retiring from something, ‘have something to retire to’ is a common piece of advice to encourage people to think about what they want their life to look like when they leave the workforce.
Think about what defines you now and satisfies you outside of work, and putting in place a plan of how that may play out in retirement can be a good idea.
While it can be hard to carve out time while you are still in the workforce, it’s possible to take small steps and set aside dedicated time each week or commit to activities that won’t take a lot of your time.
If you are keen to travel when you retire, consider signing up for a short course in the language of the country you are keen on visiting to get prepared for the trip of your dreams.
Or if you want to finally write that novel you’ve been mulling over for years, set aside a little time now to draft a framework and get a head start. Who knows by the time you retire you may be on your second novel!
Keen to do more exercise? Join a gym now and get into a routine – even if you only manage to get there a couple of times a week it’s a good start.
It takes a while to develop new habits and skills so starting to pick up the things you want to explore in retirement now sets you up for a smoother transition when you have more time to devote to these activities. Starting now also gives you a chance to try things out and see if they are something you want to commit time and energy to.
While spending time doing things you love makes for a happy and satisfying retirement, another important factor is being around people you enjoy being with.
Think about the people you enjoy spending time with and foster those friendships right now. Not only will it make for an easier transition when you retire, it will also bring you joy and the benefits of those relationships right now. There is always room in your life for making new friends too!
It’s important to be open-minded in your plan of how you see your retirement unfolding. Remember that not everyone retires on their own terms. Some need to retire sooner than expected or in a different manner than expected due to ill health, caring for a family member or because of a decision or situation in the workplace.
On that basis, it’s important to live well now – enjoy your present life and embrace the things that make you happy as you’ll also be setting yourself up to enjoy retirement – whether it’s just around the corner or still a way off.
Let’s discuss how you can plan for your ideal retirement, reach out to the Sherlock Wealth team here.
Andrew Sherlock is the Owner & Head of Advice at Sherlock Wealth.
A Sydney-based financial planning firm, Sherlock Wealth has been helping successful families, business owners and individuals with their wealth creation and wealth protection needs for more than two generations.
A Chartered Accountant with a background in funds management, Andrew’s career spans more than 30 years. Andrew was one of the first people in Australia to obtain the Self-Managed Superannuation Specialist accreditation and is one of only a few advisers in Australia to be a Certified Investment Management Analyst. He is a lifetime member of the international MDRT Top of the Table and holds a BA Economics degree from Macquarie University with majors in accounting and finance.
Helping clients achieve their lifestyle goals through smart investing and asset management, wealth structures, and strategic planning are the cornerstones of what Andrew and the team at Sherlock Wealth provide.
Andrew can also be contacted at ask@sherlockwealth.com.
While the escalating cost of living commands immediate attention as individuals grapple with mounting expenses, our shared wealth is steadily expanding, progressively transferring to the next generation at an accelerated pace.
In fact, the value of inheritances as well as gifts to family and friends, has doubled over the past two decades.i
A 2021 Productivity Commission report found that $120 billion was passed on in 2018 and that amount is expected to grow fourfold between now and 2050. In 2018, the value of the average inheritance was $125,000 while gifts averaged $8000 each.
So, there is a lot at stake and it means that estate planning – a strategy for dealing with your assets after you die – is vital to help fulfil your wishes and protect the interests of the people you care about.
One powerful tool in planning your estate is a testamentary trust, which only comes into effect after your death. It operates in a similar way to a discretionary family trust and your Will acts as the trust deed, providing instructions for the trust.
It allows you to control the distribution of your assets and provides a way of managing any tax implications for your beneficiaries. Testamentary trusts are often used to protect assets from unforeseen circumstances such as lawsuits, creditors and divorces and they can help to preserve a family’s wealth.
A testamentary trust can be useful for those with blended family relationships and children with complex needs. For example, a child with a disability who is unable to manage their own investments can be supported by the use of a trust. Testamentary trusts may also help to provide some certainty for parents that their young children will be provided for. They are also often used by philanthropists as a way of providing a legacy for a cause they support.
If you are setting up a testamentary trust, you will need to appoint one or more trustees who will manage administration and distributions.
The trustee could be a family member (who may also be a beneficiary) or the role could be handed to an independent person or organisation.
Trustees should understand the tax situation of each of the beneficiaries to ensure that the timing and amount of distributions don’t inadvertently cause difficulties for them. Trustees must also lodge a tax return every year and maintain trust accounts and records.
As the ATO points out, for the trust to operate effectively, a high level of co-operation between family members may be important so that tax, financial and other information is shared.
Whether or not you should set up a testamentary trust in your will depends on your own circumstances.
The positives include:
On the other hand, there are a number of considerations to be aware of such as:
Testamentary trusts are a valuable strategy to help ensure your wishes are followed. They can shape your legacy, provide fairly for your loved ones and protect assets.
Reach out to our team here to discuss more about establishing a testamentary trust and to see whether it is suitable for you.
Andrew Sherlock is the Owner & Head of Advice at Sherlock Wealth.
A Sydney-based financial planning firm, Sherlock Wealth has been helping successful families, business owners and individuals with their wealth creation and wealth protection needs for more than two generations.
A Chartered Accountant with a background in funds management, Andrew’s career spans more than 30 years. Andrew was one of the first people in Australia to obtain the Self-Managed Superannuation Specialist accreditation and is one of only a few advisers in Australia to be a Certified Investment Management Analyst. He is a lifetime member of the international MDRT Top of the Table and holds a BA Economics degree from Macquarie University with majors in accounting and finance.
Helping clients achieve their lifestyle goals through smart investing and asset management, wealth structures, and strategic planning are the cornerstones of what Andrew and the team at Sherlock Wealth provide.
Andrew can also be contacted at ask@sherlockwealth.com.
