Financial markets enjoyed another solid week with equity and bond markets higher. Domestically, the weaker than f’cst GDP numbers (act +0.2% v’s +0.5% f’cst; +2.1% y/y) resulted in bond yields continuing to push lower with a view that the RBA is now finished with its tightening rates. While the ‘hold’ was expected at its Dec meeting, we still see the February RBA Board meeting as a ‘live’ meeting with the 4q23 CPI data (due in January) needing to show further moderation in inflationary pressures (for no change in policy), which we do expect given the decline in oil prices over the last 3 months, combined with a slowing global growth outlook. In the US, the weaker than f’cst job openings numbers (JOLTs) was offset by the strong non-farm payroll numbers (act 199k v’s 185k f’cst) and a further reduction in the Un rate (act 3.7% v’s 3.9% f’cst) which continues to reflect the underlying strength of the US economy. In our view this will continue to see the US Fed sit on its hands and we expect no change in the Fed policy through the 1h24. This week the Fed meets for the last time in 2023. While we expect no change in the current policy, the focus will be on commentary emanating from the meeting as it relates to the Fed’s view on the future direction of both inflation as well as the economy, which will dictate the direction of cash rates through the 1q24. The release of PPI data for Nov this week (f’cst 0.0% m/m, 1.1% y/y) will continue to show a softening of price pressures. In addition to the Fed, bit the ECB (4.50%) and BoE (5.25%) are set to meet with both central f’cst to make no changes to the current policy framework, while in China, industrial production figures (y/y) for Nov (f’cst 5.7%) along with retail sales (y/y) (f’cst 12.5%) will continue to reflect the near term growth outlook. As we head into 2024, China’s Politburo has indicated that the government will release a range of fiscal measures to promote a target growth of 5.0%. This is above current market estimates of 4.50% (CY25). However, with inflation in negative territory (-0.5% y/y), the growth outlook is not assured, particularly given the challenges in the property sector, requiring the government to use all options available to achieve its targeted goals.
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