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Saturday, September 24, 2022

Australian sharemarket poised for worst month of the year


Meanwhile, the ongoing energy crisis triggered by Russia’s war on Ukraine has also raised the likelihood of a European recession as the continent struggles with soaring gas prices ahead of winter.

“Fears of higher US interest rates causing a potential recession and Europe’s ongoing energy crisis are likely to dominate global equity market sentiment this week,” said Bassanese.

The week ahead

Two key data points to be released later this week are the Reserve Bank’s monthly interest rate decision on Tuesday, and GDP figures the following day. Both are expected to go some way to providing a small boost to the local bourse.

Markets have by and large factored in a hike of 50 basis points, while our economic growth figures for the June quarter are expected to be in positive territory despite inflationary pressures.

However, a move higher or lower than the expected hike of 50 basis points is likely to throw markets off kilter. “If less, [the ASX] will rally away. If more, the market will fall off,” said Liu.

Economists are expecting Australia’s economic growth rate to be around 1 per cent in the three months between June and August.

“The focus will be on how hawkish the RBA sounds,” said AMP Capital chief economist Shane Oliver. “They may tone down the hawkishness a little bit and leave open the possibility they might slow the pace of tightening on subsequent months. Therefore a lot of focus will be on post-meeting statement, and also a speech from [RBA Governor] Lowe on Thursday.”

If the RBA raises rates, it will be the fourth hike in as many months aimed at stamping down inflation. “[The RBA] wants to avoid the US predicament where rates were left too low for too long and hard brakes now need to be applied,” said Bassanese.

And while the Australian economy has had a “reasonable” June quarter, the next set of GDP figures won’t be so rosy.

“With interest rates rising, consumer confidence has been very depressed. House prices are falling sharply … All of those things point to much weaker growth ahead,” Oliver said.

“You’ve got the combination of rising interest rates and the prospect of slowing economic growth, which is not a good combination for the share market. It suggests risks of more downside.”

A sour September

September is historically a month of markedly lower returns for both the US and Australian sharemarkets. The American financial year typically ends in September, and US investors tend to sell their loss-making stocks to reduce their capital gains tax bill.

This has a ripple effect Down Under. “We tend to get dragged down,” said Oliver. “It’s particularly evident when markets are in a downtrend, as we still are.”

September tends to be a weaker period for US and Australian sharemarkets.

Ongoing geopolitical instability and rising interest rates are likely to depress gains for the month even further.

“When you put that together with worries about central banks and recession, the risk of further downside are quite high.”

On the other hand, September could be good news for Apple investors as sales tend to surge ahead of the holiday season, according to eToro market analyst Josh Gilbert. The tech giant is expected to unveil the new iPhone 14 on Wednesday.

“Following last year’s event in September, the stock rose 20 per cent until the end of the year, so it’s an event that Apple investors should watch this week,” Gilbert said.

The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.


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