Market Update - 29th June 2024

Written by William Cooper

Domestic:

The outcome of the latest monetary policy meeting saw the RBA deciding to maintain the target cash rate at 4.35%. Inflation is proving to be very persistent, so persistent in fact that many economists are speculating that a further rate rise may be necessary to finally stamp out the sticky consumer prices. The annual rate of inflation jumped to 4% in May from 3.6% in April. Underlying inflation, which excludes volatile prices, climbed from 4.1% to 4.4%. Overall inflation fell by 0.1% from April to May as petrol prices fell for the first time this year, and declines in other areas such as dairy goods, clothing, gas & communication. This however is not as large as the 0.3% drop this time last year, which is still pushing up the annual rate. The RBA now has enormous pressure placed on them for the next meeting, as the persistent inflation is starting to become tiresome.

The Australian share market gained by 0.88% over the fortnight led by the utilities and IT sectors. The ASX was extremely volatile over the past fortnight with no observable pattern. The utilities sector was supported by market cap leaders, with gains in Origin and AGL Energy by 8.85% and 4.59% respectively. Similarly in IT stocks, the mega caps in WiseTech and Xero bolstered the IT index, both up 9.06% and 4.81% respectively. The interest sensitive, real estate index dropped by 2.71% for the fortnight, and a whopping 4.15% upon release of the inflationary data earlier this week.

International:

The US market is reaching new heights, with the S&P500 reaching $5,487.03 USD early in the fortnight which was a new record high. The US is continuing its run of economic growth, with the US government spending upwards of $18 billion USD on manufacturing construction and incurring unprecedented amounts of debt to facilitate it. The US annual deficit is around 6% the size of the US economy, which is well above the average of 3.7%. This spending is one of the major underlying causes for the country’s sticky inflation, as it is contributing to less unemployment and faster GDP growth. The US wants to begin manufacturing computer chips and electric vehicles onshore, in attempts to become less reliant on importing these products from China and other Asian countries. Ultimately, this is driving economic growth but impacts the ability to restrict inflation.

The Asian markets continue their bad run, as China’s SSE Composite had the largest drop worldwide, sliding by 2.86%, and has been trending downwards since mid-May. The continued struggles with manufacturing and housing have been weighing down significantly on their economy, and there hasn’t been an indication of the trend being bucked.

Japan has been having severe issues with currency depreciation and their finance minister reiterated on Thursday that monetary authorities are closely monitoring the currency market and may be prepared to intervene to help the currency move in a stable manner. 1 USD is currently buying 161 Yen, which is a 10% depreciation in value compared to the start of 2024 (USD/YEN = 140). Since the start of 2022 the Yen has fallen over 30% relative to the USD. This has occurred due to vast interest rate differences between the two countries, as well as generally negative outlook on the currency. Whilst this is not a positive outcome for the Japanese economy, it certainly is a good time for foreigners to go on a holiday.