Financial Markets
Markets continued to move higher over the week with Australian equities the standout asset class. Global equities (in Australian Dollar terms) were broadly flat, although the Standard & Poor’s 500 Index (+0.5% Last Close Trading) and the technology-laden NASDAQ Index (+0.7%) were able to eke out some slight positive performance over the week.
Bond Markets
Bond markets were also slightly higher, although the outlook for bond markets remains uncertain given that global central banks are now dealing with the potential of higher prices on the back of the new Trump administration’s trade policy. This was highlighted by the commentary from the Bank of England, which reflected a hawkish tone in the future direction of cash rates after reducing the official cash rate by 0.25% to 4.50%.
The Federal Reserve
In addition, the United States Federal Reserve has also signalled that any further rate cuts will be dependent upon further declines in inflationary expectations. While payroll numbers for January in the United States were behind market consensus (actual 143,000, forecast 175,000), the unemployment rate dipped by 0.1% to 4.0%, supported by solid Institute for Supply Management and Purchasing Managers’ Index data, which continues to reflect an expansion in the United States economy across both services (52.9 points) and on a composite basis (52.7 points).
The US
Despite some challenges for markets surrounding the changing trade policy rhetoric in the United States, the underlying economy remains robust, and we believe this has the potential to propel markets higher in the near term. The other aspect around the trade policies by the United States is that the actual implementation and timing of any new tariffs is fluid. This week the focus will be on United States Producer Price Index (input cost) data, with expectations that prices are expected to moderate further (+0.1% prior corresponding period, 3.2% year-over-year).
Australia
Domestically, the February reporting season starts in earnest, while the release of Westpac Consumer and National Australia Bank Business Confidence data will be the main focus for markets.
Japan
While there is little data out of China this week, investors will be focusing on Japan with Gross Domestic Product, Producer Price Index, and industrial production data, all of which are set to reflect a steady upward trajectory in the economy.
Europe
In Europe, preliminary fourth-quarter 2024 Gross Domestic Product (+0.9%, no change prior corresponding period) is also set for release, while January Consumer Price Index data out of Germany is set to be again negative (forecast -0.2%), reflecting the overall weakness in the economy. In France, the release of unemployment data (forecast 7.5%, no change prior corresponding period) for the fourth quarter of 2024 will again highlight the challenging outlook for Western Europe.
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