Market Wrap July 2023

Posted in Wealth
08/08/2023 Level One



The ASX200 index matched the Developed Market world performance index, rising (+3.2%) in July.


The S&P 500 gained 3.2% over July in local currency terms.

The Dow Jones Industrial Average® increased 3.35% for the month and was up 7.28% YTD.

The Stoxx Europe 600 Index rose 2.2% this month but is still 4.4% short of its all time high reached in January 2022.


The spot price for Gold held steady despite dollar fluctuations and uncertainty in the rates space, rising by US $42 to US $1,954.

Iron Ore:

Iron Ore price rose by US $1 to US $114.50/Mt on Chinese steel demand and iron ore supply rising seasonally.


Brent Oil price rose by US $10 to hit US $84.99/bbl, trading on tighter market fundamentals and improved US Macroeconomic data.




CoreLogic’s national Home Value Index (HVI) rose 0.7% in July marking a fifth consecutive month of housing value recovery.

Since finding a floor in February, the national HVI is up 4.1%, following a -9.1% decline from record highs in April 2022.

Nationally, home values remain -5.3% below the April 2022 peak, with only Perth, Adelaide and Regional South Australia recording a new cyclical high in dwelling values through July.

While housing values are continuing to record a broad based rise, the rate of growth has lost momentum over the past two months, slowing from 1.2% in May.



Interest Rates:

The RBA announced that they would keep the cash rate on hold for a second consecutive month at 4.1%. The RBA has stated that it needed more time to assess the effects of 400 basis points of interest rate rises it had delivered since May 2022.

Retail Sales:

Australian retail turnover fell 0.8% in June 2023, following a 0.8% rise in May 2023, and a 0.1% fall in April 2023.

Ben Dorber, ABS head of retail statistics, said: “Retail turnover fell sharply in June due to weaker than usual spending on end of financial year sales. This comes as cost-of-living pressures continued to weigh on consumer spending.

Bond Yields:

Australian government 10-year bond fell slightly to finish the month at 4.05%, trading relatively unchanged as the RBA kept the cash rate at 4.1%.

US Bond yields rose materially by 14bps to 3.95%, as the Fed passed through another 0.25% hike to 5.5% in July.

Exchange Rate:

The Aussie dollar remained steady over July finishing the month at $0.668 against the American dollar and at $0.607 against the Euro.


Australia: The Consumer Price Index (CPI) rose 0.8% in the June 2023 quarter and 6.0% annually.

USA: The annual inflation rate in the US slowed to 3% in June of 2023, the lowest since March of 2021 and compared to 4% in May and expectations of 3.1%.

EU: The euro area annual inflation rate was 5.5% in June 2023, down from 6.1% in May. A year earlier, the rate was 8.6%. European Union annual inflation was 6.4% in June 2023, down from 7.1% in May. A year earlier, the rate was 9.6%.

Consumer Confidence:

The Melbourne Institute of Consumer Sentiment index rose by 2.7%, from 79.2 in June to 81.3 in July. Sentiment remains at the deeply pessimistic levels that have prevailed for just over a year now. The Index plunged 17% over the first half of 2022 and has barely budged since then, holding in the very weak 78-86 range. Even with the latest modest lift, the Index is still firmly in this range and 3% below its level of a year ago. The main drags on sentiment throughout this period of depressingly low consumer sentiment have been the surging cost of living and sharply higher interest rates. Our research suggests inflation has been the more dominant factor.


Australia: The unemployment rate remained at 3.5% in June (seasonally adjusted). Bjorn Jarvis, ABS head of labour statistics, said: “with employment increasing by around 33,000 people and the number of unemployed decreasing by 11,000 people, the unemployment rate remained at 3.5%.

USA: Total nonfarm payroll employment rose by 187,000 in July, and the unemployment rate changed little at 3.5%. Job gains occurred in health care, social assistance, financial activities, and wholesale trade.

Purchasing Managers Index:

The Judo Bank Australia Manufacturing PMI rose to 49.6 in July 2023 from 48.2 in June, signalling a fifth monthly decline in manufacturing activity since the start of 2023, but to the softest extent in the current sequence and was marginal overall. (Readings below 50 points indicate contraction in activity, with lower results indicating a faster rate of contraction).

US Services PMI:

The S&P Global US Services PMI dropped to 52.4 in July 2023, down from 54.4 the previous month and below market expectations of 54.0, according to a preliminary estimate. The latest reading pointed to the weakest pace of expansion in the sector since February, as new sales growth slowed amid constraints on client spending, including higher interest rates.

US Global Manufacturing PMI:

The S&P Global US Manufacturing PMI was confirmed at 49 in July of 2023, signaling the softest decline in operating conditions in the manufacturing sector in three months. New orders declined again as domestic and external demand conditions remained muted.

 Sources: ABS, AFR, AWE, BLS, CoreLogic, Macquarie MWM Research, RBA, TradingEconomics, UBS



The Narrow Inflation Path

Data recently released by the ABS showed an 6.0% increase in Australia’s Consumer Price Index (CPI) over the 12 months to June 2023. Prices are clearly decelerating. With CPI growth continuing its downward trend first observed in March (7.0%) after headline inflation peaked in December (at 7.8%).

Underlying inflation, which removes items with particularly large price changes, rose 5.9% in the year to June, down from 6.6% in March.

The moderation in inflation continues the recent trend of goods prices growing more slowly than services prices (as global energy prices moderate and supply chains unblock), where goods prices rose 5.8% compared to 6.3% growth amongst services in the year to June 2023. Similarly, price growth for tradeable products (4.4%) was slower than non-tradable’s (6.9%), highlighting that after a period where Australia ’imported’ very strong inflation, we are now importing more moderate price growth, and this will continue to flow through to lower headline inflation in Australia over coming quarters.

More broadly, the Reserve Bank of Australia (RBA) is focused on whether these global trends and its actions have done enough to lower inflation to within the target range of 2-3%. Noting the lagged impacts of cash rate decisions, additional rate hikes in recent months show the Bank’s commitment to this goal.

But rate hikes in recent months have also softened the outlook for the Australian economy. Recent forecasts have predicted that Australia’s economy will grow by just 0.9% in 2023-24, well-below average annual growth of 2.6% in the decade before the pandemic.

The outlook is worse when removing the effect of population growth. The 0.9% expected GDP growth in 2023-24 is supported by expected population growth of 1.8% – hence a ‘per capita recession’. This indicates that prosperity will have stalled during the fight against inflation.

Fighting inflation while maintaining a positive trajectory is a perilous task. Over-tightening policy risks plunging the economy into recession and damaging the remarkable job gains made since 2021. Do too little and inflation remains higher for longer than it needs to. This has often been described by the RBA as a narrow path, but that narrow path has come to resemble a tightrope.

But price growth which is primarily caused by issues of supply – be it global shipping costs and import prices, the costs of a disorderly energy transition, or higher rents and house prices because of a handbrake on housing construction – cannot be readily solved by higher interest rates.

While the full effect of the 400 basis points of interest rate increases to date is yet to be seen, concerns remain that most of the inflation in the system stems from supply side issues – a fact confirmed in recent research by the RBA itself (below) – and is therefore largely immune from monetary policy.

As seen in graph 1, Supply side shocks have been the main contributor to inflationary pressures over the past few years, as unexpected increase in costs or disruption to production have occurred. Mostly due to the oil shortages felt by the Ukraine-Russia conflict and the Covid-19 pandemic.

This is inconsistent with previous inflation figures which are predominantly felt by demand side shocks. Demand side shocks are due to more jobs and higher wages increasing household incomes and leading to a rise in consumer spending, further increasing aggregate demand and the scope for firms to increase the prices of their goods and services. When this happens across a large number of businesses and sectors, further inflation occurs.

Due to the foreign conflict and the pandemic, the perfect storm of demand-pull and cost-push inflation occurred, which has caused some of the highest inflation rates in history.

Australia’s ability to develop a stronger set of inflation-fighting tools is equally important in the longer term as it is currently, with supply-side shocks expected to increasingly occur in the future as a result of climate change and other global factors.

Sources: AFR, Deloitte, RBA


Apple Inc. – A Damning Report

The mighty Apple announced its results recently, showing a definitive break in its remarkable elegant and orderly rise since December 2022.

The following Bloomberg report comments on the Apple’s decline in revenue.

(Bloomberg) – Apple Inc. posted its third straight quarter of declining sales and predicted a similar performance in the current period, hurt by an industrywide slump that has sapped demand for phones, computers and tablets.

After the company reported a revenue decline of 1.4% in the fiscal third quarter, CFO Luca Maestri said on a conference call that Apple’s performance would be similar this period. An additional drop would mark the longest streak of declines in two decades – a startling slowdown of the worlds most valuable company.

Apple shares dropped 4.8% to $181.99 in New York at the start of August, stripping the company of its $3 trillion valuation. It was the worst one-day decrease since September 2022.

Sources: Bloomberg, The Pain Report

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