Confidence
Consumer and corporate confidence remains weak.
This is entirely unsurprising, given the material tightening of monetary policy, and the difficulties in planning that results from inflation.
On that last point, consider that inflation is a general rise in the price of a basket of goods, and, that creates winners and losers. Some will have raised prices by a lot, immediately, others by a little, more slowly, and everything in between.
Given that most people operate “under contract” this means sizeable swings in margins, and cashflows, depending on where you sit in the above spectrum of pricing and pricing power.
Prices can go up, but everybody still loses.
In general, the economy works best when businesses are not spending hours agonising over their pricing strategies, and holding back on investment due to uncertainty about where demand will sit in a year or two’s time.
So, we remain modestly underweight Australian shares, relative to international, and modestly overweight credit and fixed income, given yields have repriced, relecting the higher inflation, and, that credit exposures move us up the capital stack, relative to equities, which sit at the bottom.
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