Stubborn inflation, rapid central bank policy tightening and concerns about a potential global recession have created a tough year for financial markets. But with successive better-than-expected inflation prints in the US, the key macro force weighing on markets is now receding as a risk in our view. In our final report for 2022, we examine the key market influences shaping the outlook for 2023.

After a rally extending all the way from 2020’s Covid lows, 2022 has proven to be a difficult year for investors. In this week’s report, we review the key drivers of the market’s sub-par performance in 2022, and we foreshadow the issues likely to affect investors in 2023.

The surprisingly strong acceleration in inflation over the past 18 months has been felt in most corners of the globe. Australia has also felt the impact of this global inflation surge, although not quite as intensely as many comparable developed economies.

While the Australian equity market is down around 3% in price terms year to date, the local market has outperformed global equities, which are down around 11% in AU$ terms for the year so far. In this report, we consider whether Australia has what it takes to continue outperforming global markets in 2023.

A key story of 2022 is the steady rise of the US Dollar. With all the uncertainty in the world right now, one point of stability has been the resilience of the greenback, which has sharply outperformed its global currency peers.

After an extended run of better-than-expected earnings seasons, Q3 results from the US have proved somewhat disappointing. With forward earnings estimates now facing significant downgrades, we explore the earnings headwinds facing the US equity market.

The past month has been a better one for stock markets, at least by 2022 standards, with US and global equities managing a decent bounce from their mid-October cycle lows. In this week’s report, we consider the Fed’s role in the recent equity bounce and how expectations around Fed policy are likely to influence financial markets going forward.

At its October board meeting, the Reserve Bank of Australia (RBA) surprised the money market and economists alike with a lower than expected 25 basis point (bp) increase, taking the official cash rate to 2.6%. In this note, we explore whether this partial pivot is likely to prove prudent or foolhardy.