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Your Super Savings Are Shrinking!

In this week’s market review we will as always begin in the US, cross to Europe and Asia, and end up with a local Australian summary – bearing in mind that our market pretty slavishly follows those in the Northern Hemisphere, which had an up day on Thursday, and a down day on Friday.

Volatility continues to rage across most asset classes, and this is now having real world consequences on our superannuation, or pension savings, which in Australia are forced by Government. As we will see the losses are mounting up.

But first, it was a bad end to a wild week with U.S. stocks dropped on Friday as worsening inflation expectations kept intact worries that the Federal Reserve’s aggressive rate hike path could trigger a recession, while investors digested the early stages of earnings season. The previous day the stronger than expected inflation data showed inflation remained stubbornly high and this shocked the market into a volatile rise. But in the last session of a volatile week, equities opened higher, then reversed course after data from the University of Michigan showed consumer sentiment improved in October but inflation expectations worsened as gasoline prices moved higher. The median expected year-ahead inflation rate rose to 5.1%, above the 4.7% seen in September. A climb in inflation expectations, a closely watched metric by the Federal Reserve, comes just a day after data showed worse-than-feared inflation pressure.

“Yesterday you had this amazing, powerful intraday rally that was completely wrong,” said Phil Orlando, chief equity market strategist at Federated Hermes. “Then you look at the Michigan numbers this morning that’s consistent with what we’re seeing in the economy, and the stock market now is down to reflect that number. That’s correct.”

The latest edition of our finance and property news digest with a distinctively Australian flavour.

Go to the Walk The World Universe at https://walktheworld.com.au/

The Risks Are Building They Say…

You thought 2022 was bad, with surging inflation, war in Ukraine, China’s slowdown, well economists seem to be lining up to suggest that 2023 could be even worse. On Tuesday IMF cut its forecast for worldwide growth in 2023 and said that policies to tame high inflation may add risks to the global economy. In their press conference the mood was, well, downbeat and concerned.

Bank of Spain Governor Pablo Hernandez de Cos said that some of the shocks in the European Central Bank’s downside scenario “may have materialized.” The ECB had published two different scenarios at its last meeting in October — a baseline and a downside version that foresaw stronger inflation and a contraction in economic output in 2023. Still, de Cos noted that energy prices are lower than in the central scenario.

The uncertainty justifies the ECB’s decision to abandon forward guidance and take a meeting-by-meeting, data dependent approach, he said, speaking at the Institute of International Finance conference in Washington. Asked about the implications of the latest market rout in the UK, de Cos said “if it’s properly managed, it shouldn’t be contagious.”

European Central Bank President Christine Lagarde said policy makers are determined to bring down inflation and argued that cooperation with other monetary authorities and fiscal policy is necessary to succeed.

“We need to have cooperation among ourselves — central bankers — to understand what the spillovers will be, what the spill backs could be, what impact we have on each other and what ramifications it will take because financial markets are extremely integrated and because our respective monetary policies have an impact on other countries around the world beyond,” Lagarde said at an event hosted by the Institute of International Finance.

“We also need to have cooperation between monetary policy and fiscal policy,” she said. “We have to act in a cooperative way because if we don’t, then monetary policy is going to have to be even more determined and and more decisive in its fight against inflation.”

Treasury Secretary Janet Yellen cited concerns about the potential for a breakdown in trading of US Treasuries, as her department leads an effort to shore up that crucial market.

“We are worried about a loss of adequate liquidity in the market,” Yellen said Wednesday in answering questions following a speech in Washington. The balance-sheet capacity of broker-dealers to engage in Treasuries market-making hasn’t expanded much, while the overall supply of Treasuries has climbed, she noted.

Even President Joe Biden said this week that the US, the world’s biggest economy, could suffer a “very slight” recession.

The producer price index for final demand climbed 0.4% from August, the first increase in three months, and was up 8.5% from a year ago, Labor Department data showed Wednesday.

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