Investment markets continued to recover in value on the back of news that inflation may have peaked. The Australian share market as measured by the All-Ordinaries index gained 6.0% for the month (after gaining 5.6% in October), and closed for November at 7,480.7 points.
The Australian Dollar rallied by 5.7% in November, with 1 Australian Dollar currently buying 67.67 United States cents.
The Reserve Bank of Australia (RBA) increased the official Cash Rate for a seventh consecutive month. The 0.25% per annum increase in November now sees the RBA Cash Rate at 2.85% per annum. The RBA board meet again next Tuesday before breaking until February.
Global share market returns were positive in November, with the United States Dow Jones Index gaining 5.7%, the London FTSE gaining 6.7%, the Japan Nikkei 225 gaining 1.4%, and the Hong Kong Hang Seng Index gaining by 26.6% (after declining by 13.7% and 14.7% in September and October respectively).
While it is welcome news to see two months of positive returns in the global share markets, it would be remiss to not acknowledge that a similar situation occurred in July and August this year, before a poor month in September (linked to negative interest rate expectations) wiped away gains.
Source: Marketindex.com.au
Clearly, with inflation showing early signs that it may have peaked, some investors are celebrating the potential end of the interest rate hike cycle. However, to do this without focusing on the potential negative economic consequences of higher interest rates, can be a risk.
From an Australian perspective, it remains to be seen how the Australian economy will function with higher interest rates against a backdrop of near record level of household debt. Added to this, for the first time in history, we have a mortgage borrower market with a significant amount of fixed rate loans (which will progressively mature from next year). I am guessing that 2023 will be another year of volatility….
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This article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation, and investment objectives.