Far East Capital Newsletter
Sentiment has taken another hit with inflation talk
8 May 2022

In This Issue

Sentiment has taken another hit with inflation talk

Sentiment deteriorated last week, which is not surprising given the volatility and the uncertainty in the markets. A number of share prices have fallen back to their support lines. These have to hold or the story gets uglier.

The US markets don't know which way to turn. It is not just a battle between the bulls and the bears, which we can always understand when there are counterposing opinions struggling for dominance. There is something more fundamentally confusing in the volatility and the reaction to daily news flow. On the one day we have a very strong market because the interest rate goes up by 50 basis points, suggesting that you sell on rumour and buy on news ... even if it is just confirmation of negative news. On the the next day it crashes down again because people are saying there will likely be more rate increases further out. I would have thought that would have been obvious the day before.

We are basically in sync with the US markets, though not perfectly. We do have much greater weightings towards commodity based stocks. We have a Federal election coming up but there hasn't been much evidence of expectations on the outcome affecting share prices, yet.

The Labor Party has not given us cause for concern on its policies because it really hasn't told us what they are. Maybe it is just trying to get through the campaign without any gaffs, hoping there are enough uninspired Liberal voters from the last election who are prepared to give them a go this time. Whoever wins, the outcome is still likely to be messy. International events are more relevant to stock prices at the moment, with inflation and interest rates being more international in flavour than being confined to our domestic economy. We should be seeing the re-emergence of inflation as an economic pandemic that has a long way to go before it will be purged. 

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