October 2022 Update
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There’s a lot of negative sentiment in the world at present and it is there for all to see on financial markets.
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A graph of the ASX for the last 12 months shows a lot of spikes and even more dips. The main reasons of course being inflation and rising interest rates. The ASX All Ordinaries index is down 11.7% over the last 12 months. A fall of 10% is considered a correction whilst a fall over 20% is considered a bull market. This is the case in the US.
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Recent inflation data out of the US saw investors panic. The annual inflation rate rose to 8.3% and led to heavy a sell offs on the Dow Jones and the tech heavy Nasdaq. Australia has followed suit but not to the same extent.
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If you spend money, you would have noticed that most things are going up in price on our shores as well and the petrol excise reduction ending has just added up to 25c per litre. The Federal Reserve and the RBA have no choice but to keep raising interest rates higher and likely for longer. This means we cannot expect to go back to pre-Covid 19 days of low inflation, low interest rates and central bank support for financial markets. It also means many of us will have to tighten our belts. Those with mortgages in the 80s and early 90s know all about this and can teach the rest of us some valuable lessons.
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The Australian economy is looking healthier than the US but the concern is whether inflation can fall without unemployment rising. It’s hard to imagine given the shortage of workers across most industries but there is always a tipping point. I also keep reading that hundreds of thousands of workers are fed up and set to quit there jobs. I understand that workers will leave jobs if they are unhappy but people need to work to live.
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It has not been much fun this side of the desk in 2022 but we have all had to get used to change and we humans are a resilient lot. I have no doubt we will get through what are difficult and expensive times, particularly for those with large loans.
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Reporting Season Snapshot
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Twice a year, ASX companies report their results and the following points were noted:
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Largely the results were in line with expectations, with 52% of the companies beating revenue estimates and 44% beating earnings estimates.
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Unsurprisingly, the outlook commentary was cautious with some companies electing not to provide quantitative guidance.
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Broadly speaking consensus earnings expectations are coming down following the results. Capital management (e.g. buybacks) was also a feature of companies with balance sheet and earnings flexibility. This was particularly interesting for companies which operate in cyclical sectors considering the slowing economic cycle.
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Property
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A $500,000 mortgage now costs more than $10,000 per year after tax to maintain. Sydney and Melbourne have seen house prices fall sharply but it does need to put in context that prices have risen significantly over the last 5 years. In the west, we still have supply issues and high wages in the resources sector should keep workers coming this way. But a slowdown in resources would likely see a significant exodus, just as happened after the last resources boom.
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China
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100 million people remain in lockdown as the Chines Communist Party (CPP) seeks zero Covid
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the summer just passed was the hottest on record
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consumption is the main driver of the economy
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the average saving rate is 35%
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The CPP aims to encourage economic growth, cultivate cultural development and strengthen the national defence. It would appear they have a bit of work to do on the first two aims because 100m people in lock down is not good for business. And neither is a war with Taiwan!
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As Xi Jinping moves into his 3rd term, the hope is that he moves back to a growth model and relaxes his stance on Taiwan. But as his Russian counterpart has shown, common sense does not always prevail.
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News for Seniors
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if you receive the Centrelink Age Pension and you are also working or keen to work, you can now earn $11,800 ($23,600 for couples) this financial year before it impacts the pension.
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Commonwealth Senior’s Health Card
The Bill to increase the level of deemed income and be entitled to the card has not yet been passed in parliament and a further wait looks likely given parliament was suspended to mourn the Queen
