The RBA will conduct yet one more charge hike of 25bp earlier than coming into into an prolonged pause with a 3.10% charge. 

That’s the prediction made by JP Morgan in its 2023 Outlook Report, whereby the funding financial institution contains pretty reassuring forecasts for Australia’s economic system wholemeal over the approaching twelve months. 

Of foremost curiosity to Market Index readers could also be one factoid JPM highlights for the Australian inventory market’s 2022 efficiency.

For the primary time in a decade, the ASX 200 has outperformed main mixture world share market product MSCI World Index. Financials and Supplies have been the 2 sectors most answerable for sustaining the uplift. 

Not nice, not horrible 

However let’s not get forward of ourselves: it might be luck. 

Australia has, in some ways, prevented the worst financial outcomes of the post-covid world being skilled elsewhere across the globe proper now, and efficiency must be seen on this gentle. 

The drought-breaking ASX 200 run this yr could very effectively be little greater than a circumstance of our relative geographic isolation from the identical pressures inflicting worse outcomes in Asia, North America, Africa, and Europe. 

Nonetheless: some extent of nationwide delight, on the very least. 

Inflation stays, however unemployment to develop

As regards to ongoing macro headwinds, JP Morgan doesn’t draw back from noting Australia is anticipated to see ongoing cost-of-living inflation.

Nonetheless, it has gone as far as to name family steadiness sheets “by and enormous sturdy.” 

The funding financial institution additionally sees unemployment rising in 2023, which is dangerous information for anybody needing to work who finds themselves stranded, however excellent news for the general inflation image. 

It expects Oz unemployment to be much less dramatic than the US and the EU’s; each areas are tipped for recessions, whereas we aren’t. 

Isn’t unemployment dangerous? 

Low unemployment charges in main economies are, sadly, an element protecting inflation greater, as an alternative of decrease. 

Extra folks with extra discretionary revenue means extra spending, and Australians are nonetheless doing a whole lot of spending (although many are additionally taking out extra bank cards.) 

Macquarie Financial institution on Tuesday recognized that Australian house furnishings spending peaked above the pre-covid common throughout Black Friday gross sales late final month, regarded as excellent news for Nick Scali (ASX:NCK)

Journey selecting again up 

In one other notice put out Wednesday, JP Morgan cited journey exercise restoration in Australia. 

Hong Kong lifting all arrival journey restrictions the financial institution expects to enhance sentiment total in Australia, and the financial institution notes ongoing assist from Asian markets in constructing Australla’s customer numbers again to pre-covid ranges. 

On that entrance, we’re really over midway to getting again to the 2019 “baseline,” outlined within the chart beneath. Formally, we’re at 69.4% of 2019 ranges.

Source: JP Morgan (December 2022)

Supply: JP Morgan (December 2022)

Of that 69.4% restoration, 36.7% of that section was leisure journey (learn: regular holidays), up from solely 30.1% in September. 

The primary supply international locations of these travellers have been New Zealand (20%), UK (9.7%) and the US (8.6%). 

Due to causes that most likely don’t want explaining, China has fallen off the checklist, for now. 

One small concern 

Whereas JPM expects recessions in most main economies extra inventory market lows in 1H 2023, earlier than a happier 2H 2023, eagle eyed readers JPM’s notice in the present day could have noticed one thing of doable concern. 

The financial institution expects the value of Brent Crude (the worldwide oil benchmark which is instrumental in informing Australian petrol costs) to “exit 2023 at US$96/bbl.” 

JPM advises readers to purchase into commodities in the event that they fall again even additional on recession fears, on condition that it believes we’re in a commodity supercycle with supply-demand imbalance “prone to persist for years.” 

Oil was floating close to $100 when inflation shocks have been at their absolute worst earlier this yr (and in late 2021), and OPEC’s provide lower from a month or two in the past, broadly seen as meant to drive costs again up, was criticised for being prone to prolong world financial restoration. 

Don’t take my phrase for it: that warning got here from the Worldwide Power Company in October this yr. Fortunately for us, it isn’t uncommon for an oil worth forecast to be utterly improper. 

However, nonetheless…maintain that in thoughts.