Weekly Market Update 22 June 2022

Outlook for markets:
Shares remain at high risk of further falls in the months ahead as central banks continue to tighten to combat high inflation, the war in Ukraine continues and fears of recession remain high. However, we see shares providing reasonable returns on a 12-month horizon as valuations have improved, global growth ultimately picks up again and inflationary pressures ease through next year (allowing central banks to ease up on the monetary policy brakes).

Australian home prices are expected to fall by 15 to 20% into the second half of next year, as poor affordability and rising mortgage rates impact. Sydney and Melbourne prices are already falling aggressively, and most other cities and regions are seeing price gains slow ahead of likely falls.

What to watch over the next week?
Australian June quarter CPI data is released on Wednesday and we expect to see a 1.8% increase in headline inflation, which would take annual inflation to 6.2%, its highest level since 2001, driven by further rises in petrol, electricity, gas, food and new home construction costs. We expect a 1.5% rise in the trimmed mean, with annual growth rising to 4.7%. We currently expect the RBA to lift the cash rate by another 50 basis points at its August meeting, but if the trimmed mean is much stronger, a 75 basis point hike is a possibility. Other price indicators next week include export and import trade figures for the June quarter (we expect an 11% lift in export prices and a 7% lift for imports), June quarter producer prices, June retail spending (we are looking for a slowing to 0.3% over the month) and June credit figures (we expect a 0.7% lift in credit growth).