Market review and outlook

After a strong run over recent weeks, global equities pulled back last week under the weight of ongoing hawkish rhetoric from several central banks – as outlined in our new summary table below.

At this stage it appears both the US Federal Reserve and the RBA feel labour markets in each of their countries are too hot for comfort, and some degree of slack – even if not full blown recession – is required. Financial markets, meanwhile, remain hopeful that core inflation and wage growth may slow quickly enough to avoid further untoward rate increases and limit the potential economic downside.

My base case for the moment is that both the Fed and RBA will hike rates again in July.

Of course, we’ll learn more on the inflation front this week with key readings in both Australia and the US. Also worth watching are events in Russia. Initial hopes of an end to the Putin regime were quickly dashed over the weekend, and it seems a case of ‘business as usual’ at this stage. While Russian regime change might ultimately be good for the global economy – lessening geo-political risk – it  obviously depends on who would replace Putin. There’s also the risk of significant short-run instability/uncertainty if and when the regime finally begins to crumble.

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