My thoughts

Market Overview
April saw a partial stabilisation following the volatility in March.
Equity markets experienced a material bounce back, recovering some of the prior month’s losses.
Offshore markets led the recovery, while the Australian market continued to underperform.
Volatility remains elevated, but markets are adjusting to a more complex environment defined by geopolitical risk, higher energy prices and a less certain path for interest rates.

Global Developments
Two key forces continue to shape markets:

1. Geopolitical risk and energy markets
The conflict involving Iran remains the dominant global risk.
Energy markets have stabilised from the sharp moves seen in March but remain elevated. The key issue is not just price, but the ongoing risk to supply chains, particularly through critical shipping routes such as the Strait of Hormuz.  Higher energy costs continue to act as a headwind to global growth while reinforcing inflation pressures.

2.Interest rates and central banks
Central banks are now operating in a more complex environment.
Inflation remains above target in many economies, and the recent rise in energy prices has increased the risk that inflation stays higher for longer. As a result, expectations for rate cuts have been pushed further out.

The focus has shifted from “when will rates fall” to “how long will rates need to remain restrictive.”

Australian Economy
Domestically, the economy continues to adjust to higher interest rates and rising cost pressures. The Reserve Bank of Australia has maintained a cautious stance following its recent rate increase, with inflation still above the 2–3% target range and risks tilted to the upside due to energy prices.
There is now a growing expectation that the RBA may need to increase rates again at its next meeting.  The key concern is that inflation expectations become entrenched, which would force the Bank to keep policy tighter for longer.
Households remain under pressure, particularly as higher borrowing costs and increased living expenses reduce discretionary spending.Economic growth remains positive but modest, with risks skewed to the downside should cost pressures persist.

Energy & Structural Themes
One of the most important developments this year has been the shift in how energy is viewed globally.  Energy security is now as important as energy transition.

Recent analysis highlights that Australia is in a unique position:
• A major exporter of energy commodities
• Yet heavily reliant on imported refined fuel

In fact, Australia imports the majority of its liquid fuel needs, leaving it exposed to global supply disruptions and pricing shocks.

This creates both opportunity and risk:
• Higher commodity prices support parts of the economy
• Rising fuel costs place pressure on households and businesses

Australian Federal Budget
• Spending remains elevated, with increasing reliance on personal taxes rather than
productivity growth
• Fiscal policy is adding to inflation, working against the Reserve Bank of Australia and keeping interest rates higher
• Policy settings are increasingly anti-business, with rising regulation, rigid labour laws, and intervention in key sectors
• Energy costs and policy uncertainty are undermining competitiveness and creating strategic risk
• Growing risk of capital flight, reduced investment, and pressure on manufacturing viability

Bottom Line
Fiscal expansion, regulatory tightening, and policy settings are combining to suppress private sector investment, prolong inflation, and increase Australia’s structural economic risk.
Without a shift toward productivity, stable policy and lower energy costs, Australia risks becoming a high-tax, high-cost, low-growth economy with declining living standards.

Outlook
Looking ahead, markets will continue to focus on:
• Developments in the Middle East
• The path of energy prices
• Central bank responses to inflation

While uncertainty remains elevated, markets are adapting to the new environment.

Final Thoughts
April reinforced a key shift in markets.
The environment is no longer defined by a clear path to lower inflation or expected rate cuts. Instead, investors are adjusting to a landscape where inflation remains uncertain, and energy security and geopolitical risk are playing a larger role.

Encouragingly, the rebound in offshore equity markets highlights the resilience of global earnings and the benefits of diversification, particularly relative to the Australian market, which continues to lag.

At the same time, a higher-for-longer interest rate environment is providing attractive opportunities in floating rate debt, where income adjusts with rising rates and offers resilience in volatile conditions.

A disciplined, diversified and long-term approach remains the most effective strategy in navigating this environment. If you have any questions please give me a call.