The RBA ends bond buying - but remains "patient" on rates. We expect the first rate hike in August

The attached note looks at the RBA's first meeting for this year and the outlook for the official cash rate. The key points are as follows:

  • The RBA will end quantitative easing this month.

  • While it now sees unemployment falling below 4% and higher inflation it is prepared to be "patient" for now on rates.

  • We expect rate hikes to commence in August.

  • Ultimately, we see the cash rate rising to around 1.5 to 2% in the years ahead but it's a bit of guess and the RBA will only raise rates as far as necessary to cool inflation.

  • Rate hikes from later this year are unlikely to be enough to threaten the economic recovery but they will add to the slowdown in the property market where we see dwelling prices peaking later this year.

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Oliver's Insights – Share market falls - seven things for investors to keep in mind

The attached note takes a look at the recent sharp falls in share markets and looks at seven things for investors to keep in mind. The key points are as follows:

  • Share markets have fallen in recent weeks on the back of worries about inflation, monetary tightening, the Omicron disruption and the rising risk of a Russian invasion of Ukraine.

  • Its too early to say markets have bottomed.

  • Key things for investors to bear in mind are that: corrections are healthy and normal; in the absence of a renewed recession share market falls may be limited; selling shares after a fall locks in a loss; share pullbacks provide opportunities for investors to buy them more cheaply; shares continue to offer an attractive income flow; shares often bottom at the point of maximum bearishness; and finally, to avoid getting thrown off a long-term investment strategy it's best to turn down the noise.

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2022 – a list of lists regarding the macro investment outlook

The attached note takes a look at the continuing surge in global inflation pressures, notably in the US. The key points are as follows:

  • Inflation is placing increasing pressure on major central banks to remove monetary stimulus.

  • Inflation & rising interest rates will likely contribute to more volatile & constrained investment returns this year..

  • The long-term downtrend in inflation and interest rates since the early 1980s is likely to be over removing a tailwind for investment returns.

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2022 - a list of lists regarding the macro investment outlook

The attached note provides a simple point form summary of key insights and views on the economic and investment outlook. The key points are as follows:

  • 2021 saw strong investment returns with low volatility.

  • 2022 is likely to see more constrained returns with increased volatility.

  • Watch: coronavirus and vaccines; inflation; the US mid-term elections; China issues; Russian tensions with Ukraine and the west; & the Australian election.

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The two 'known unknowns' of 2022

In history there are decades where not much happens, and there are months where decades happen. Covid has had far reaching effects on how economies function, where we work and how firms do business, and that process is on-going. 

While the dust has not fully settled, the early picture emerging in the post-pandemic economy is that household behaviour, labour markets, correlations between asset classes, and the sensitivity of all those factors to policy changes, have notably changed. These factors have, in turn, altered the growth and price trends in most economies, and this will have significant implications for risk and return dynamics within portfolios going into 2022 and beyond.

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Five reasons to expect a cooling in the Australian property market and falling prices in 2023

Key Points:

  • After a 22% rise in Australian home prices this year, they are expected to slow to 5% growth in 2022 with prices likely to fall 5-10% in 2023.

  • The main drivers behind the slowdown are: worsening affordability; rising supply; rising rates; macro prudential tightening; & a rotation in spending away from housing.

  • The main risks on the downside are another big covid set back or faster rate hikes & the main risk on the upside would be a fast return to pre-covid immigration.

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COVID-19 support payments are ending: Here's what to do

For more than 2.1 million Aussies, the federal government’s COVID-19 support payments offered a lifeline through the latest pandemic lockdowns. Now they’re being wound back as vaccination rates increase. If your income has been affected, here are some tips and resources to help you manage the transition.

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Central banks – including the RBA and Fed – gradually removing monetary stimulus is more good news than bad

The key points are as follows:

  • The march of central banks towards removing monetary stimulus is continuing with the RBA bringing forward its guidance regarding the first rate hike and the Fed set to commence tapering. We expect both to start raising rates later next year.

  • The shift towards monetary tightening signals slower more constrained share market returns – but the trend should remain up as the impact of monetary tightening is offset by economic recovery & higher profits, monetary policy is still easy and will be for a while & bull markets usually only end when monetary policy is tight.

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Compound interest is like magic - and it's an investor's best friend

The attached note looks at the recent pull back in investment markets and renewed uncertainty regarding the outlook. The key points are as follows:

  • Compound interest is an investor's best friend.

  • The higher the return, the greater the investment contribution and the longer the period the more it works.

  • To make the most of it, ensure an adequate exposure to growth assets, contribute early and often to your investment portfolio and find a way to avoid being thrown off by the investment cycle.

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Central banks - including the RBA and Fed - gradually removing monetary stimulus is more good news than bad

The attached note looks at the recent pull back in investment markets and renewed uncertainty regarding the outlook. The key points are as follows:

  • The march of central banks towards removing monetary stimulus is continuing with the RBA bringing forward its guidance regarding the first rate hike and the Fed set to commence tapering. We expect both to start raising rates later next year.

  • The shift towards monetary tightening signals slower more constrained share market returns - but the trend should remain up as the impact of monetary tightening is offset by economic recovery & higher profits, monetary policy is still easy and will be for a while & bull markets usually only end when monetary policy is tight.

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