Market Week in Review

Hi, welcome to the market week in review for the week ending 19th of June 2026. My name is Alex Cousley. I'm a portfolio manager based out of Sydney. And this week was really a week about central banks. Uh but before we get into that, we also got some data out of China. So we got the usual monthly data for the month of May and we saw the general conditions are still quite soft. So we saw a decline in retail spending. So we've been in this environment for some time where the Chinese consumer is cautious. House prices are still struggling. Income's not been rising much and so in that environment, it's not that surprising to see that the consumer is still under a bit of pressure. And we also saw a bit of softness in fixed asset investment. And so I think that sets us up for the potential for a little bit more infrastructure stimulus coming through in the second half of 2026 from the Chinese government just to provide a bit of support and get growth back towards 5% um or close to that for the target. All right, if we go into the central banks though, so it was quite a busy week. We had the Bank of Japan, we had the Reserve Bank of Australia and we had the Federal Reserve. They were the the big three meetings. And starting with the Bank of Japan, we saw them raise rates to 1%. It's the first time in 30 years they had rates at 1%. It was largely expected by the market and I think looking ahead, we still think that the Bank of Japan is going to be fairly steady in terms of um their path towards getting policy back towards normal rates. There had been a bit of excitement in the last 12 months and 24 months that that Bank of Japan would be more aggressive and I think they've proven to much more patient given that they have been in this low rate environment for a very long time. And so we think that we're probably looking at a Bank of Japan policy path that might have one more rate hike by the end of the year and that could even potentially get pushed into the first half of next year. Market reaction was pretty tepid and we saw that um the dollar yen or the the yen against the dollar actually weaken through uh Thursday trade here in Sydney. Uh okay, if we move across to the Reserve Bank of Australia, much closer to my home. So, they have been in a very different position to the rest of the world. They had risen rates three times already this year. Uh and we saw a hold, so they kept rates steady. Noting that they're still a bit worried about inflation, but that we are seeing signs that the economy is cooling. Uh and we think that they're likely to stay on hold for some time now. We have seen consumer business confidence and the housing market also show signs of slowing. That is flowing through to consumer spending now, and the labor market has not been uh has been cooling a little bit as well. And so, sitting here, market has repriced quite a bit on the RBA. It wasn't that long ago that the market had um a 5% in front of the cash rate uh a 5% in front uh for the RBA cash rate. Uh we're now sitting closer to pretty much half a rate hike being priced through the next 12 months. We think the Australian government bonds still offer some pretty attractive valuations though. Uh and so, that's still a a decent place for us to be putting capital. Down to the big event, so the Federal Reserve. So, this was Kevin Warsh's first meeting as Fed chair. And quite a hawkish change from the the Fed govern uh from the Fed members. So, we saw the dot plots, so where each member thinks that um policy needs to go. Um it's actually now split between holding rates for the rest of the year and actually increasing interest rates. That was a little bit of a surprise to the market. Uh and then the other bit was the communication channel has been vastly um turned down. Uh Kevin Warsh has a philosophical view that the Fed should not provide as much forward guidance and communication um to the market. And so, we saw uh a lot less in the way of forwards um forward-looking statements um from the Fed during the press conference and indeed during in the statement itself. Looking ahead, we think that it's still quite likely that the Fed remain on hold through the rest of this year. We think the economy is still in a pretty good spot. Let me just release our global market outlook around pressure and the title was pressure tested, knowing that the economy has faced some pressures around oil prices and some supply chain disruptions as a result of the Middle East conflict that seems to have abated now. But nevertheless, the fundamentals look very healthy. We don't think inflation risks are significant challenge right now. Yes, there have been some increases due to oil prices, but when we look at what is really driving core inflation, which is wages, wages have been quite soft and the housing inflation still looks pretty tepid. And so, with that backdrop, we think that the economy can remain pretty resilient, but no inflationary pressures to force the Fed's hand and raise interest rates this year. Okay, with that, I might leave it there. Thank you for listening and we look forward to speaking to you next time. Hi, I'm Sophie Antelme head of portfolio and business consulting at Russell Investments. 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