Markets performance subdued as rate hikes spook investors Investors have seen significant volatility in markets over the first quarter of 2022, as Russia’s shock invasion of Ukraine led to further inflationary spikes and the Omicron variant of COVID-19 continued to spread.
In March, the US Federal Reserve announced its first interest rate rise since 2018, signalling what may be the end of two decades of quantitative easing from central banks around the world. The US central bank is expected to raise rates as many as six more times by the end of 2022, with inflation poised to hit a peak of 8.5% in the US economy in April. 1 However at home the Reserve Bank has been more cautious. The Australian central bank kept rates on hold at a record low of 0.1 per cent in April, but flagged it was turning more hawkish in its outlook, with some economists predicting a rise to as much as 1 per cent by the end of 2022. Meanwhile, the Reserve Bank of New Zealand began rate rises at its February meeting, while the European Central Bank is expected to potentially increase rates twice before the end of the year. 2 The rate hike in the US, and the threat of further runaway inflation has had a dampening effect on equity markets, with the ASX200 recording significant falls in March before regaining ground to rise above 7400 points at the end of the month. The S&P 500 and other US stock indices recorded their worst quarterly losses since the onset of the COVID-19 pandemic, with the tech-centric NASDAQ index in particular continuing to suffer.
However, the focus on war in Ukraine and the resulting potential shortages in commodities has seen better performance in Australian equities in April. The local economy is looking strong heading into the federal election, with unemployment at its lowest level since 2008 and expected to continue dropping. 3 However, experts are predicting the end of the nation’s COVID-19 driven house price boom, with property values expected to drop by as much as 10 per cent by year end. The Reserve Bank’s own forecasts suggest that a hike in rates to 2 per cent – not expected any time this year – would see house prices fall by around 15 per cent, with the median home value in Sydney dropping by around $200,000 according to CoreLogic figures. After a rocky start to the year with the spread of the Omicron variant and subvariant BA.2, consumers remain unsure about the economic prospects of 2022. Roy Morgan’s most recent confidence index saw consumer sentiment rise slightly to 94.6 points, but remain significantly below figures relating to those of the same time last year, before a series of lockdowns relating to COVID-19 variants began to stall the nation’s progress out of the pandemic. 4
1 The outlook for equity markets in 2022. ClearView, March 2022: https://mcusercontent.com/bc1d166c1b42f6fd478e6f1f3/files/4d3ed43e- 7771-de0b-5064-f41bba23715b/CVE_0279_The_outlook_for_equity_markets_in_the_year_ahead_V2.pdf 2 Market wrap: US inflation, rate hikes among five things to watch in markets this week. The New Daily, 11 April 2022: https:// thenewdaily.com.au/finance/2022/04/11/markets-this-week-april-11/ 3 Market wrap: US inflation, rate hikes among five things to watch in markets this week. The New Daily, 11 April 2022: https://thenewdaily.com.au/finance/2022/04/11/markets-this-week-april-11/ 4 ANZ Roy Morgan Consumer Confidence Index up 1.2 points to 94.6. Roy Morgan, 12 April 2022: https://www.roymorgan.com/ findings/8955-anz-roy-morgan-consumer-confidence-april-12-202204110651
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