My investment outlook for October
I spoke to SBS News TV (short clip attached) this evening about recent movements in markets. Asia woke up today scratching its head at the stock market's incredible turnaround after digesting US monthly inflation data.
We think that there is a growing consensus in markets that inflation is now under control and as recent interest rates start to flow through into the economy over the next year, inflation will be brought back under control.
Inflation was in line with expectations, but that's not to say there weren't positive glimpses in there. Composition is very important and we know from past history that it takes time for prices to stop rising.
Monetary policy and rising rates have a 12-18 month lag, so we will only start to see rate rises take effect in the next few months before their full force being felt next year.
Bottom line: We think the RBA read things perfectly when they raised by only 25 basis points in October, balancing inflationary pressure with the need to maintain financial stability.
The Bank of England and US Federal Reserve are working in the background to ensure things don't blow up. No such problem here in Australia. The Aussie dollar will continue to stay under pressure until the US Fed pivots, which could be early 2023. Until then it's great news for our exports.
We believe Australia emerges from this as one of the most desireable and well managed economies in the developed world.