Economics

One of the most bitterly divisive US presidential elections in history has investors on edge. While it will ensure market volatility, long term it’s the economy that will dictate how markets perform.

Recently released wages data increased the likelihood the RBA will pause its rate hiking campaign for the near term, economists say. Meanwhile, an increase in full-time employment, and the wages they earn for it, has helped narrow Australia’s gender wages gap to its lowest-ever level.

True to form, US stocks are outperforming Aussie shares on the back of a resurgence in technology-related company valuations. Economists warn against straying from diversification, however, with Aussie miners still offering investors capital returns on top of an underlying hedge against a US downturn.

Basing an investment strategy on the Goldilocks investment markets of the last 35 years gives rise to considerable risk, writes Michael Block, and now might be the time to get out of growth assets.

For those planning to invest in offshore assets, the decision whether to hedge currency exposure is an important one as movements in the Australian dollar can either erode or add value to an investment.

The Australian dollar’s appreciation from recent lows is eroding returns from unhedged international investments. With analysts mixed on where the currency is heading, opting to hedge foreign currency exposures could provide investors with some peace of mind.

Inflationary pressures are expected to ease over the next six months according to federal budget forecasts, while consumer-focused and housing stocks could benefit from government policies aimed at boosting consumer spending and the availability of affordable housing.

Experts forecast a more balanced budget with an even-handed dispersion of revenue and spending measures. Income tax cuts will likely go ahead, while super should get a break from further tinkering.

More rises are likely but analysts say a confluence of factors may cap the official rate at around 3.1 per cent in 2023, providing relief to Australian households.

Mortgage holders will start to see the effects of sequential rate rises by December, but it’s after the break that the real impact will hit home.

Consumer confidence is at crisis levels, but households aren’t acting to change spending patterns.

Despite the widespread damage caused by Covid-19, the crisis accelerated the pace of technological advancements along with our ability to adapt to the latest changes. A survey by McKinsey & Co found that Covid-19 sped up the adoption of digital technologies by several years.