Rising interest rates and high inflation have been the themes of the year so far, and in the US tomorrow morning our time I expect the latest inflation figures to show a 9% rise, which will also likely trigger the Federal Reserve to increase US interest rates by a further 0.75% later this month.
 
For a “nuts-n-bolts” explanation of how inflation works, check out my spot on 6PR this morning.
 
For those watching the US dollar, steep interest rate hikes and recession fears have lifted the greenback to the highest levels since March 2020. The surge could be a significant headwind for the profits of many large US firms, and another reason to expect a dimming earnings outlook.
 
Analysts Core Logic have said the market has not yet priced in any possible decline in earnings estimates this year. They say, “even if earnings estimates stay stable and especially if they decline, the stock market is going to have to fall further before we see an important bottom.”
 
This means investors need to brace for more pain before things start to turn around.

In other news, New Zealand’s central bank has this afternoon raised that country’s interest rates by 0.5%.
 
NZ has been ahead of Australia in its gradual upwards trend, and interestingly, they’ve seen a roughly 1% decline in property prices each month since they started increasing interest rates in October 2021. In the battle to drive down property prices and inflation here, I expect our RBA will continue to follow the NZ example.
 
When it comes to rental prices, over the COVID-19 period to date, residential rental values jumped by 18.8%. But with interest rates rising and recent drops in capital values, we may well be seeing a shift in this metric as well.
 
Rental demand across the medium and higher density segment has surged throughout the first half of the year, partially driven by worsening affordability in the housing sector. It’s likely the gap in rental values will narrow further as rental demand continues to shift towards relatively more affordable higher density properties.