Most markets were up slightly this week as the US tech stocks led the way for most of the week before falling back overnight as Jerome Powell struck a more hawkish tone, implying that while rates in the US may be near their peak they might have to stay there for a while longer. In Australia, the RBA raised rates on Tuesday but also acknowledged weakness and mortgage stress in certain areas of the economy. Ironically, therefore, a recent hawkish pause in the US and a dovish rate rise in Australia has sent the Australian dollar down another 2% versus the US Dollar this week.

That left US stocks marginally flat so far for the week as very strong tech earnings were offset by a potentially weaker outlook, although the data remains noisy and sometimes conflicting. The Nasdaq was up a percent or so, as overall long-term interest rates have fallen during the week both here and abroad.

Looking at very short-term moves in markets (intraday) it seems that the halt in the rise of longer-term rates has been the main factor providing relief to markets, with moves in long-term interest rate expectations of plus or minus 0.2% outweighing the impact of near-term earnings.  Some large tech companies have surprised by 20-30% on the upside but have still been hit by rate rises (or buoyed by easing expectations this week) indicating that much of this strength is ‘in the price’ while the inflation and rate outlook remains highly uncertain. Top contributors this week included Apple, Microsoft and Nvidia.

Emerging markets outperformed with a 2.1% rally, while European equity markets remained solid, even as the European Central Bank forecast a recession by the end of the year.

The Australian market was more or less flat for the week at the time of writing, with strength in healthcare, consumer discretionary and banking stocks offset by weaker performance from the energy and materials sectors. Weaker economic data here and abroad weighed on the cyclical resources sectors while it seems that the market is now seeing solid value in the rest of the market with a host of fund managers lining up to support currently out of favour CSL, a stock which hasn’t been seen as a value pick for many years. Other healthcare stocks like Cochlear and Ramsay Healthcare also enjoyed increased support.

Strong performance from consumer discretionary stocks jarred a bit with increased evidence of mortgage stress, but less so given the evidence of higher cash balances and strong spending from older and more affluent segments of the population. The banks were also solid, despite the latest rate rise which was widely expected. The bond market reaction perhaps provided a clue as short-term yields rose while longer-term rates actually fell.

This could indicate that the market is hoping that a stitch in time might mean less elevated rates down the track or weaker economic activity. Either way, there is a growing acknowledgement that the local economy is operating at several speeds, as noisy data points equally to pockets of strength and weakness. Mining giants BHP and Rio Tinto weighed on the index as the global manufacturing economic momentum slowed.

In fixed income markets, Australian government bonds were up 1.0% as measured by the Ausbond Composite Index, while global bonds were flat. Credit spreads widened slightly, and corporate bonds were weaker.