It’s been an interesting week in the news cycle, with Australians set to head to the polls this weekend to vote in the Federal Election.
While the polls seem to strongly favour a win for the Opposition, the last few years have taught us to treat such indicators with a grain of salt, going all the way back to 2016 when Brexit occurred and Donald Trump won the race for the White House.
Either way, while politics is in the news, the more important developments are taking place in financial markets.
Last week, we commented on the bloodbath that had developed in cryptocurrencies, which suffered a brutal sell off, with Bitcoin falling below USD $30,000 per coin at one point. Some of these assets have stabilised somewhat in the past few days, though almost all are still down heavily across the course of 2021.
This week, stock markets are back in the news, especially after a record decline in the United States on Wednesday 18th May, which saw major US stock indices fall between 3% and 5%, some of their sharpest declines on record.
The weakness has translated to Australian shares too, which fell by more than 1.5% yesterday and are now down 7% for the year. That is obviously not a great result and is only made worse by the what’s happening on the inflation front, with the higher prices that we are seeing across the economy meaning stocks are down by closer to 12% in real terms.
Indeed, it was the impact that inflation is having on company earnings that drove this week’s major sell off, as we’ll touch on below.