Financial Market Update – April 202223 May 2022
As outlined in the March quarter overview, global investment markets experienced high level of volatility in the first quarter of the year. We saw this continue in April. The Russian/Ukraine war, China’s zero-COVID policy and the expectation that central banks will increase interest rates are all factors that have continued to weigh on market performance.
Inflation is on the rise
Increased inflation continues to maintain pressures on global central banks, and is a key factor driving market performance over the last month.
During April, the annual consumer price index (CPI) was at its highest level in 20 years at 5.2%. This is largely due to higher dwelling construction costs and automotive fuel prices.
The invasion of Ukraine by Russia has also had an effect. With the region a major supplier of food and energy, we have seen an increase in costs for these supplies since the conflict started.
As the market expected, the rise in inflation led to the Reserve Bank of Australia (RBA) increasing interest rates from 0.1% to 0.35% on 3 May.
With the market pricing in future interest rate rises, bond markets remain under pressure.
International equity (share) markets
The US share market (S&P500), which has many interest rate sensitive companies, had some poor company earnings results from Netflix, Google, Facebook, Amazon and Apple, and was down 9.1% in April.
Chinese markets were down, impacted from the ongoing COVID-19 lockdowns, while European share markets are still affected by the ongoing conflict in Ukraine.
Australian equity (share) markets
The Australian share market was also negative, albeit only slightly. Our market provided somewhat of a cushion to returns given the dominance of the big banks (which tend to do well in a rising rate environment) and commodities stocks benefiting from rising commodity prices.