Market Update: April 2023

What’s happened recently? 

• The Reserve Bank of Australia (RBA) put rates on hold at 3.6%
• China’s economic recovery not solid enough
• US indexes unchanged, muted trading
• Accelerated business activity props up the European economy.

Why did these things happen? 

The main US stock market indexes were little changed overall in April, with the S&P modestly higher and Nasdaq near unchanged. The month was also marked by fairly muted trading range as the VIX (index that measures market volatility) fell.

Markets were supported by some positive themes from earnings season, the period where a large number of listed companies release their earning reports. This included better-than-feared regional bank results. However, banking fears resurfaced later in the month with the First Republic Bank expected to go into receivership.

Towards the end of the month, futures were pricing in a ~90% chance of one more 25 basis point hike in the May meeting of the Federal Reserve (the Fed).

The European economy grew by 0.1% in Q1, propped by an acceleration in business activity. Europe’s overall rate of inflation increased slightly from 6.9% to 7% in the month. This was from a peak of 10.6% last October. But while headline inflation has fallen and will continue to, economists predict three more interest rate hikes from the European Central Bank before it holds for the rest of the year.

As largely expected by economists, the RBA delivered a welcome rate pause. It was the first break after 10 consecutive months of rate hikes since April 2022. The Board highlighted a “substantial” slowdown in household spending and policy lag as reasons, although Governor Philip Lowe later said holding rates steady this time did not imply that the central bank would not raise rates in the future.

Meanwhile in China, the economy expanded by more than expected in Q1, underpinned by strong growth in exports and a recovery in retail sales and property prices. However, the recovery appears uneven. The National Bureau of Statistics of China admitted that the foundation for economic recovery was “not solid yet.”

Is there good news?

The Australian economy is showing signs of a slowdown from its 2022 pace.

Consumer spending is finally plateauing, showing that the rate hikes are working. Yet activity in the domestic services sector is rising. The sooner inflation is curbed and falls closer to the RBA’s target, the sooner interest rates should begin to gradually decrease over the next few years.

To cushion the impact, the government is likely to include some measures in its 2023-24 Federal Budget.

What could lie ahead?

Like always, everyone is paying close attention to the next set of global data.

The US and Switzerland banking system crises ultimately created fluctuations in financial markets. But the Fed and European Central Bank are still expected to continue with rate hikes.

In Australia, the RBA Board’s priority is to return inflation to the 2% to 3% target range while keeping the economy on an even keel. With monetary policy operating with a lag, the April rate pause allows more time for the Board to assess the impact of rate rises to date and the economic outlook. The developments in the global economy will help inform its decision for May.

What should I do if I’m concerned about my investments?

If you’re wondering about whether you should make changes to your investments, we recommend connecting with your financial adviser to review your investment goals, identify any potential opportunities, and make changes if necessary. 

If you don’t have an adviser, you can find an adviser near you using our Find an Adviser service at cfs.findadviser.com.au. Call us with any general queries on 13 13 36, Monday to Friday, 8:30am to 6pm Sydney time (+612 8397 1100 from outside of Australia).