Following on from a tumultuous year, volatility and uncertainty were predicted to be persistent themes throughout 2023 – and the predictions were right.
But while a rocky year was not unexpected, a number of major events did manage to both shock and surprise us. Here’s a look back at the biggest issues that caught many off guard in 2023.
Banking crisis sends shockwaves
On 10 March, Silicon Valley Bank (SVB) suddenly collapsed, becoming the largest US bank to fail since the global financial crisis and sending shockwaves throughout the financial system.
SVB, whose customers were primarily technology and life science companies including start-ups, crumbled under the pressure of a deposit exodus and higher interest rates. March also saw the collapse of crypto-friendly US banks Silvergate Capital and Signature Bank.
In response to these failures, US regulators stepped in to guarantee all deposits at SVB and Signature Bank, while the US Federal Reserve unveiled a US$25 billion bank term funding program to provide emergency liquidity.
Later in March, amid fears of contagion to the global banking system, UBS agreed to buy its rival Credit Suisse in a deal orchestrated by the Swiss government. First Republic Bank went on to fail in May and was taken over by US banking giant JPMorgan Chase.
RBA gets an overhaul
The federal government accepted all 51 recommendations of the wide-ranging review of the Reserve Bank of Australia (RBA) on 20 April, including a major overhaul of the RBA’s decision-making processes.
The review recommended that a monetary policy board, with responsibility for monetary policy decisions and oversight of the RBA’s contribution to financial system stability, should operate separately from a new corporate governance board.
A shift to longer and less frequent board meetings was also recommended by the review to allow for more in-depth discussions of forecasts, strategy, and other monetary policy issues. These changes will take effect from the RBA’s first meeting of 2024.
Meanwhile, other changes resulting from the RBA review that require legislation, including the splitting of the central bank’s board, are currently before Parliament.
Slower progress on inflation
After holding in July, August, September and October, the RBA lifted the official cash rate by 25 basis points to 4.35 per cent in November, with RBA governor Michele Bullock warning that inflation was “proving more persistent than expected a few months ago”.
The hike followed an upside surprise in the quarterly consumer price index (CPI), which accelerated from 0.8 per cent in the June quarter to 1.2 per cent in the September quarter.
Ms Bullock has since described inflation as the “crucial challenge” for the Australian economy over the next one to two years and has stressed that the issue needs to be brought under control without triggering an unemployment rate spike.
The latest monthly CPI indicator published in late November showed that inflation cooled from 5.6 per cent in September to 4.9 per cent in October, which some economists have interpreted as showing that inflation is now tracking below the RBA’s forecasts.
All eyes now turn to the RBA’s first meeting of the new year on 5–6 February.
New and ongoing geopolitical tensions
Conflict broke out between Israel and Hamas in early October, with concerns that the conflict could spark a wider regional war being raised by many, including the Future Fund.
The conflict fundamentally represents a significant humanitarian crisis. For investors, attention initially turned to a rise in oil prices which has since waned. Globally, markets have also remained relatively calm despite the current geopolitical situation.
UBS Global Wealth Management chief investment officer Mark Haefele has warned investors to prepare for a “new world” defined by economic uncertainty and geopolitical instability.
Mr Haefele predicted that politics will play an outsized role in 2024, with the US presidential election, the Israel-Hamas and Russia-Ukraine wars, and the ongoing rivalry between the US and China all potentially having global market repercussions.
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.