FIG AVENUE INVESTMENTS

Australian economy

The false economy of the Covid era has started to reverse sharply with corporate bankruptcies accelerating and business confidence diving. But it is not all bad news with Australia's trade balance jumping back to all-time highs and the level of unemployment remaining at historic lows¹. 

International economy

It's been about a year since the US Fed's call on the transitory nature of rising prices began to be questioned, with any hopes of a reversion to the 2% target rate being consistently quashed. The most recent US inflation figure was the worst in recent history (since the 1970s), sitting at 8.6% for the year¹. The world's next largest economy, China, is currently experiencing relatively low economic growth and high unemployment, driven largely by the zero-Covid policy and lockdowns of entire cities.

Investment Markets

June capped off a dismal first half to 2022, with most markets seeing falls of over 5% for the month. US and European stocks were down around 20% since the start of the year, while Australian equities had fallen about 12%. Bucking this trend were Chinese stocks that, whilst they were down almost 10% for the first half of 2022, had a big jump in June (up about 10%)².

Outlook

Odds of a period of stagflation are increasing, largely due to labour markets remaining very tight even in the current climate of uncertainty (i.e. as unemployment is at lows, the next likely move is for a rise). Whilst rising unemployment and prices in Australia would cause pain for much of the economy, there might be some stabilisers and stimulus levers that could provide a buffer from the worst effects of a stagflationary event.

S&P/ASX200 - 12 months to 30 June 2022