Early last week it looked like an imploding crypto exchange might be the next leveraged player that the Fed hiking cycle had broken but by the end of the week early signs of a peak in inflation had sent markets rocketing higher. Some of this might have been due to the forced capitulation of some investors who had been very defensively positioned for falling markets but a few days on it is clear that investors see this latest inflation print as fundamentally a good sign and markets have held on to their gains. Continued rumors of a relaxation of China’s zero covid policy also buoyed markets while they might also have been sniffing out the slight detente between Biden and Xi Jinping that has played out in recent days. The impact of the better-than-expected performance of the Democrats in the US mid-term elections is still difficult to pin down but what was expected to be a pivotal event ended up being overshadowed by other news. Either way it was an eventful week that left the European and US markets up 5% and the tech heavy Nasdaq up some 8%. The question in every investor’s mind is whether inflation will start to consistently decline from here, perhaps allowing the Fed to engineer a soft landing. The performance of individual sectors and commodity markets certainly struck a more optimistic note with iron ore up by almost 10% and other industrial metals up by even more (probably underscoring just how much China’s COVID policy has weighed on the prospects for Australia and perhaps the global economy). Interest rate sensitive stocks including tech stocks, utilities and real estate trusts were also amongst the principal beneficiaries of this shift in interest rate expectations. Perhaps just as importantly we have not yet seen a rush of Fed committee members talking the market down so the Fed may well be starting to share this view. The Australian and Japanese markets ended the week up around 4% while emerging markets and the UK were up slightly. Within emerging markets we also saw a reversal of recent trends as the beleaguered Chinese market caught a bid while the Brazilian market (up some 20% this year for the Australian Dollar investor) was down 5% after the market baulked at incoming President Lula Da Silva’s proposed redistributionist policies.

When the US inflation data came out the bond markets immediately pared future rate rise expectations by about 0.25% and the market expectation is now that cash rates peak within 12 months at around 4.5% (from 3.75% currently). On the other hand, most economists expect US GDP to trough in the first half of next year which explains why some market participants are getting excited about an imminent end to this hiking cycle, especially with a slowdown in corporate earnings not yet obvious. The contradictions were just as evident at a stock level as tech heavyweights Microsoft, Apple and Amazon led the market upwards while also announcing hiring freezes. Meta (Facebook) was up some 20% the same week that it laid off 11,000 employees.

Events on the global stage served to overshadow what was a fairly week start to the local earnings season with a host of blue chips including Westpac, NAB, James Hardie, Xero and Domain all disappointing. This was countered somewhat by Computershare’s strong result, a bid for Origin Energy and strong performances from local healthcare champions CSL, Cochlear, Resmed and Ramsay. At the end of the day though it was again global cross currents that had the biggest impact and half of the 4% local share market rise was accounted for by double digit gains from materials stocks and the local gold miners.

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