Equities rallied strongly over the quarter with both domestic and global markets higher, while bond markets sold off on the back of higher yields across the curve. The selloff in global bonds came on the back of continued rhetoric by central bank governors that the rate cycle was not yet complete and higher rates in the US and across Europe will continue. Interestingly, the BoJ is the one major central bank that is bucking the trend on increasing cash rates despite inflationary pressures continuing to build (3.4% YoY, v’s 3.2% f’cst).

Locally, the weaker than expected m/m inflation print (act 5.6% v’s 6.1% f’cst) no doubt contributed to the RBA’s decision to not increase cash rates at its last meeting on 4th July.  Given the variability across monthly CPI prints, the RBA will await the full 2Q23 CPI figure (26th July), which will provide a clearer gauge as to the direction of inflation. In addition to a better than expected inflation print, monthly retail sales were also stronger (+0.7%, +0.6% to f’cst). Given the backdrop of higher prices across a range of non-discretionary services (i.e. utilities, insurance, rents etc) the pickup in retail sales was somewhat surprising.

In the US, the economy continues to look sound. Durable goods orders (+1.7%) along with improving consumer confidence data and resilience in the housing market saw the S&P500 Index up strongly, with its best 1H performance since 2019, while the NASDQ 100 Index was up 3.4% resulting in its best ever 1H performance. The major focus this week in the US was the latest payroll and unemployment data, with expectations that the jobless rate would fall marginally (-0.1% to 3.6%) while jobless claims were set to remain relatively steady (~245k v’s 239 pcp). We believe that given the current strength in the US economy it can avoid a recession despite the US Fed continuing to push rates higher. The release of manufacturing PMI data from the US (f’cst 46.3pts), China (f’cst 50.0pts) and the UK (f’cst 46.2pts) along with the Tankan manufacturing surveys in Japan will provide further details of the overall strength of the global economy.

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