Economic outlook 

• Inflation is moderating globally but remains above target, while progress on inflation in Australia may be stalling. Further progress should be made as consumer demand and the pace of government spending slows. 
  
  
• Economic growth has slowed in the US but there are signs of recovery in Europe. Australia’s outlook is less positive with leading indicators pointing to continued deterioration.  
  
  
• Labour markets continue to normalise from very tight levels, however we are conscious that a further weakening in unemployment and wage growth has a feedback loop into growth. 
  
  
• Fiscal spending has provided significant support, particularly in US and Australia, but is now slowing, which should allow for further progress on inflation. Europe has already cut rates while the US should have room to do so by the end of the year. However, there is rising probability of a rate hike in Australia after a series of higher-than-expected inflation figures. 

Market scenarios for 2024 

• Markets are pricing a “goldilocks” scenario to continue but higher valuations and stretched technical point to a tougher outlook unless earnings improve more broadly. 
  
  
• Risks to the downside include shocks to global energy and trade from geopolitical events or a sharp retraction of business and consumer activity as cost-of-living pressures start to bite. 
  
  
• Our central scenario has shifted to be more balanced for equity and credit markets growth with our prior optimism for better growth and earnings having occurred in early 2024.  
  
  
• On the positive side we may well see more equity market strength if we see a stabilization of inflation while company earnings and GDP continue to be positive. Globally purchasing manager indices highlight a growth reacceleration is more likely offshore versus a slowing in growth more likely in Australia.  

Themes influential this year 

• Geopolitical volatility is still a heightened risk for this decade, and we expect some influence from elections and conflicts around the world to input into our investment analysis. 
  
  
• Steps to mitigate climate change through whatever mix of renewables, run-off fossil fuels and nuclear means that the cost of this change impacts government spending and beneficiaries who help build new energy capacity. 
  
  
• AI converges with other themes such as data centre’s and energy to power them in a mix of hype and a land grab for opportunities in these and other industries. 

What to watch in the next few quarters 

• Election related volatility is expected to rise with shifts of leadership possible in the US, France, and UK. This leads to more policy uncertainty.
  
  
• Short term supply issues could be impacted by both geopolitical and climate factors and affect global trade. 
  
  
• There is a risk of some heat coming out of the AI boom as Nvidia briefly became the most valuable company in the world. 
  
  
• Chinese stimulus efforts have been ongoing and ineffective in the backdrop of a depressed property market and consumer confidence at lows, however persistence of further policy action may eventually start to work. 

Quarterly Market Performance Commentary to 28 June 2024 

• Equity markets rose in the US but fell in many other markets around the world during the quarter. 
  
  
• 10 year government bond yields rose from 3.96% to 4.31% for Australia and 4.20% to 4.40% for the US.
   
• Credit spreads were little changed over the quarter while at relatively low levels for the year. 
  
  
• The USD was weak against the Australian Dollar and Euro, however USD strengthened against the Japanese Yen. 
  
  
• Commodities were mixed over the quarter with oil and other energy commodities weaker, base and precious metals stronger and agricultural commodities mixed with coffee particularly strong. 
  
  
• Volatility measures were mixed with weakness in US Equity VIX, oil and gold, while there were strengthening volatility measures for currency and bonds. 
  
  
  

Market Performance

 

Click here for the World Economies June 2024 Update

Click here for the Asset Class Performance June 2024 Update

 

 

This information is general in nature and is provided by Partners Wealth Group. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.