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Monthly Market update - October 2022


Growth assets staged a recovery in October, after a major sell-off in September. Bank and Energy sectors led gains as key plays on higher interest rates and inflation. However, Central Banks continue to lift interest rates aggressively and it seems only a matter of time until a major slowdown hits the global economy (the only way Central Banks can reduce inflationary pressures).

Europe continues to remain problematic with the bombing of the Nord Stream pipelines likely to cut-off gas supply to Germany, over the medium term. This coupled with OPEC’s production cuts has seen fossil fuel prices (oil, gas and coal) rally again. The UK financial markets rejection of the Truss government’s expansionary fiscal policy led to the shortest term of any UK Prime Minister – 44 days! Liz Truss has since been replaced by Rishi Sunak - the first PM of Indian background, the first with substantial wealth and the first to be appointed by new King Charles III.

There were no such leadership issues in China, where Xi Jinping was appointed for a third 5-year term, after purging any opposition and surrounding himself with ‘yes-men’. We are concerned that China’s administration continues to move towards Maoist ideology and away from the market reforms of Deng Xiaoping. The lack of criticism at the top and in the media leads to hubris and poor policy decision making. China’s COVID lockdown policy is a good example of a dubious policy against a proven solution of vaccination and acceptance of living with the virus externally. Chinese equities and iron ore moved lower after the reappointment of Xi.


The Australian economy remains robust but so too is inflation, which printed at 7.3% in the September quarter. The RBA has lifted the cash rate to 2.85% and financial markets are pricing in a peak cash rate of 4.0% by mid-2023. If correct, the variable home loan rate is headed for 6.0% or nearly triple the levels of early 2022. We believe this will have a major impact on household budgets and that a material slowdown is ahead.

The other major news in October was the Federal Budget update under the new Labor government. The FY23 budget deficit came in better than expected at -$36.9bn (or -1.5% of GDP), due to windfall gains from high coal and LNG prices, but we were surprised that the deficit stays out at -$40-50bn over the next few years. This is because of lower commodity price and productivity assumptions and higher costs, particularly interest costs.

Gross debt hits A$1 trillion or 41% of GDP by FY24 but this is relatively moderate versus the developed world and Australia retains its AAA credit rating. This is one of the major reasons that we prefer to tilt our asset allocation towards Australia. In our view, Australia has lower sovereign and credit risk than most developed countries in the world. However, Australia’s key weakness lies in high household debt and with rising interest rates, we expect a major reduction in consumer spending in 2023, and potentially rising loan impairments.


We are experiencing a brief relief rally from the relentless bad news of inflation and rising interest rates. Economic growth and company results are still robust and are supporting many sectors and stocks. However, the rise in interest rates is yet to fully impact the economy and is not likely to be felt until early 2023.

Accordingly, we remain cautious and expect the next events to include a major slowdown in the economy and earnings downgrades. Inflation will eventually retreat but in the meantime we will be dealing with challenging conditions. We think it is too early to be talking about Central Bank’s ‘pivoting’ - that is a reversal in their tightening policy. This will come but is not likely until the second half of 2023.

We expect markets to remain volatile for most of FY23, but this will present opportunities ahead of the next bull market (as interest rates come down). We are positioned defensively and will be on the lookout for such opportunities as they arise.

The next key events on the calendar include:

  • Australian AGM and Bank reporting season – November 2022

  • US mid-term elections – 8 November 2022

  • G20 meeting in Bali – 15 November 2022

  • RBA meeting – 6 December 2022

  • Fed meeting – 13/14 December 2022

Bill Keenan

Principal, Portfolio Manager

Bill Keenan is the founder of Sunbird Portfolios. Sunbird provides independent advice to leading financial advisers across Australia.

Bill has 28 years’ experience in financial markets and holds a Bachelor of Business in Accounting and a Graduate Diploma in Finance and Investment.


General Securities Advice - any advice provided in this document, is general in nature only and does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, the reader must consider whether it is personally appropriate considering his or her financial circumstances or should seek independent financial advice on its appropriateness.

Past performance is not a reliable indicator of future performance.

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