Economic Update – “Flying Start”

CY2023 is off to a flying start with the ASX200 rallying 6.20% for the month of January. This has been aided by the unexpected backflip to China’s Zero-COVID policy in the first week of December. This abrupt change in policy has bought about investment market exuberance particularly for commodities and banks which have both been key drivers to the share markets’ positive start to the year. This is not the scenario we were expecting when we wrote in December.

US long-term government bonds recorded their worst calendar year on record, posting a negative 26% return. Large-cap stocks lost 18%, although the Nasdaq Composite was the biggest loser with a 33% fall from grace. Bonds could not escape the twin forces of unexpected rapid inflation and aggressive central bank tightening.

2021 and 2022 were both severely disrupted by COVID-19. Only one month in and optimism has taken over. There appears to be two broad factors driving this optimism: expectations that inflation is peaking, thus central banks will slow the rate of interest rate increases, and China’s backflip on COVID-19 policy to re-open their economy.