In our introduction to the last Quarterly Review, we suggested that the market was not taking much notice of risks, such as: a rise in inflation and interest rates, and some of the negative sides of Trump policy, most notably the risk of trade wars.
This month these concerns hit markets, which saw a short, sharp sell-off based on these concerns. Slightly higher wage growth in the US started it off and then we received news regarding the tariffs on steel and aluminium, which the Trump administration were looking to impose. Markets did recover quite well after the sharp sell-off, but markets tend to test the bottom again, even if they continue to rise in the medium term. A trade war would not be good for anyone and whilst it is unlikely it will get to that, markets do not like uncertainty.
Meanwhile in Australia, interest rates are going nowhere. We have been surprised at economist’s predictions of an imminent rise in interest rates, since with Australia’s debt load, you may have to end up reversing any rate rise soon after it was implemented.
Rather than the slow but steady rise in global asset prices experienced over the previous 12 months, this year is clearly set to be much more volatile.
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