Central banks around the world are embarking on a frenzy of rate hikes as they try to rein in inflation. The IMF says 75 central banks have raised interest rates in the past year, moving almost four times each on average – including Canada, which last Wednesday surprised global markets with a 100 basis-point increase, the largest by any G7 economy since 1998.

And with US inflation accelerating to 9.1% in June, the highest since 1981, and price growth in New Zealand reported on Monday to be at a 32-year high of 7.3%, pressure on the RBA to raise further keeps growing, and ANZ is now forecasting a cash rate above 3% by Christmas.

All this contractionary monetary policy could indicate recessions ahead, yet employment data remains very strong in the US, Australia and elsewhere. The Wall Street Journal says we may now be in the era of the full-employment recession, in part as a result of shrinking labour forces and growing cohorts of retirees as the Baby Boomers quit work.

Healthcare advances will only become more crucial as the world’s population grows and ages, thereby creating interesting investment opportunities in the biotech sector uncorrelated to economic cycles.

Analysts at Goldman Sachs think Australia’s inflation could reach 8% in Q3, a 32-year peak and higher even than the RBA’s upwardly revised forecast of 7%. Indeed, Treasurer Jim Chalmers has indicated his July economic update due on Thursday next week will contain “confronting” news, including about the cost of living.

For investors, this environment raises many questions. What is the likelihood that the US and other economies will be damaged if monetary screws are over-tightened, and to what extent is this risk already priced into markets?

The XJO is now trading in wider bands and breaking out from its recent symmetrical triangle. The market tested support at 6540 on Friday and is preparing to test resistance around 6750 in today’s session.

The market has been trading between these two levels for all of July so far but this may change in the coming days if the market sustains its rally towards the 50-day moving average (currently at 6853). We expect the 50-day moving average to act as a major resistance level on the first test, but selling pressure may decline in subsequent attempts to break through.

The XVI is sitting around 17.5% and implied volatility is around 18.5%. The XJO currently has an IV rank of 48, which is ranked in the middle of its implied volatility range over the past 52 weeks. 

Globally, commodities such as timber, oil and copper are well off their 2022 peaks, suggesting slowing economic activity ahead. However, robust jobs data points the other way. The US added 372,000 new jobs in June, with unemployment steady at 3.6%.

And in Australia, we learned this week that unemployment has plunged to its lowest level since 1974, just 3.5%, with almost one unemployed person per vacant job.

These may be challenging times for central banks and investors, but spare a thought for those most severely impacted by the current inflationary spiral.

The United Nations says more than 70 million people in the developing world have fallen into poverty in just the past three months as a direct consequence of global food and energy price surges, the impact of which on poverty rates has been drastically faster than the shock of the COVID-19 pandemic.

Be sure to catch our The Insider: Biotech Special Event webcast, featuring a panel of leaders from this top five unicorn-producing sector: Matt McNamara, board director and CIO of Horizon 3 Biotech and Steven Yatomi-Clarke, CEO of Prescient Therapeutics.

Matt and Steven will be joining us tomorrow, Thursday 21st July at 12.30pm (AEST), where they will provide insights into the investment potential within Australia’s globally recognised biotech landscape. Matt will also discuss key stocks from the wholesale Horizon 3 Biotech Fund, how the industry fits into the current market environment and how to identify potential investment opportunities and distinguish the winners from the rest. To join us for this session, click here.