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Financial Market Update – January 2023 Wrap Up

Market Performance

January saw strong gains in markets across the globe. The Australian market rose 6.5% for the month out paced by a 11.7% rise in the Chinese market and 6.6% in the US. The discretionary retail sector was the best performing sector (up 10.1%) in Australia with the resilience of the consumer supporting strong 4th quarter results for major retails Myer, JB HiFi and Super Cheap Auto. Materials rose 8.9% on the back of the removal of Covid restrictions in China, with an expected spending spree like what Developed Markets have seen. The worst performing sectors were Energy and Utilities but these remain the best performing sectors over the last 12 months.

Economic Indicators

The economies of Australia & the US continue to report high inflation, well above the desired range of central banks. Australia reported a 7.9% inflation for December, above consensus forecasts, resulting in expectations of continued rate rises to bring it back under control. There is no Reserve Bank (RBA) meeting in January, but expectations are now for rate rises in February, March and possibly another 2 (at this stage) by the end of the financial year. The US is in a similar situation with rises to date not slowing the consumer enough to bring inflation down toward the desired level.

Interest rate rises will impact the economy. In Australia there is many loans that were previously fixed rolling to variable. This is likely to double the cost of loan repayments which will impact consumer spending. There are also significant price rises in energy which also restrict consumer spending. The issue the RBA faces is determining how much of the rises they have made so far will impact the economy in the future. There is a lag in the impact of rate rises of up to 18 months. While markets expect further rises, it could push the economy over the edge given the amount of debt in the economy. Bringing inflation under control is the only focus, letting inflation run causes more issues than the short-term pain of recession.

If you would like to discuss your fixed or variable mortgage, contact Loreen Dyer ldyer@thehopkinsgroup.com.au

Real Estate Markets

The listed Real Estate market had a strong month rising 8.1%. The reasons for the rise are unclear but most likely bargain hunting after significant price corrections in 2022. The interest in property is consistent with what Brad, Stephen and Natasha are reporting with an increase in enquiries and attendance at open for inspections. The property management team are reporting an increase in rents across most markets with demand from tenants exceeding supply of available properties. Pressure is expected to increase as Chinese students are required to attend classes for their degree to be recognised in China. The overall expectation is that property prices will come down on the back of rising interest rates but lack of supply and strong yields counter this argument.

If you would like to discuss property, you can contact Brad Carlin-Smith (Real Estate Agent) on bcarlinmith@thehopkinsgroup.com.au or Stephen Phillips (Head of New Property) at sphillips@thehopkinsgroup.com.au or the Sarah (Business Development for Property Management) for property management enquiries sholdsworth@thehopkinsgroup.com.au

The Positive & Negative Impacts High Interest Rate Has on Savings

The impact of high-interest rates on saving can be both positive and negative.

On the one hand, high-interest rates can encourage people to save more, as they provide a greater return on their savings. On the other hand, high-interest rates can also hurt the economy, leading to decreased spending and economic activity and the erosion of the purchasing power of your savings.

The key benefit of high-interest rates is that they incentivize saving.

When interest rates are high, people are more likely to deposit their money in savings or other interest-bearing accounts, as they can earn a greater return on their savings. This can be particularly beneficial for those saving for long-term goals, such as retirement or buying a home, as the additional interest earned over time can help their savings grow more quickly.

In addition to encouraging saving, high-interest rates can also control inflation. Central banks often raise interest rates when inflation rises too quickly, as higher interest rates can curb spending and slow down the economy. This can help to reduce inflationary pressure and maintain price stability.

However, high-interest rates can also have negative consequences for the economy.

One of the main ways in which high-interest rates can impact the economy is by making borrowing more expensive. When interest rates are high, borrowing money, such as taking out a mortgage or a personal loan, becomes more costly.

This can lead to decreased spending, as consumers are less likely to take out loans to purchase big-ticket items such as cars or homes. This, in turn, can lead to decreased economic activity, as businesses may sell fewer goods and services.

Another negative impact of high-interest rates is that they can erode the purchasing power of savings.

When interest rates are high, inflation often rises as well. If the interest rate on a savings account needs to be higher to keep pace with inflation, the purchasing power of the money in that account will decline over time.

This can make it more difficult for people to save for their future goals and make it more challenging to maintain their standard of living in retirement.

High-interest rates can also impact the stock market, as they can make bonds more attractive to investors. When interest rates are high, the bond yield is typically higher, making them a more attractive investment than stocks.

As a result, investors may shift their money from stocks to bonds, leading to a decline in the stock market. This can harm the economy, as a declining stock market can reduce consumer confidence and decrease spending.

It is important to note that the impact of high-interest rates on saving can vary depending on the individual.

For example, older individuals closer to retirement may be more likely to save to ensure they have enough money to support themselves later. On the other hand, younger individuals may be less likely to save, as they may feel they have more time to build their savings and may be more focused on paying off debt.

In conclusion, the impact of high-interest rates on saving can be complex and multifaceted. On the one hand, high-interest rates can encourage saving and control inflation. On the other hand, high-interest rates can also make borrowing more expensive, erode the purchasing power of savings, and impact the stock market.

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