Bond Yields
Financial markets were able to move higher over the week as we await the inauguration of Donald Trump for his second term as President. All major asset classes were able to move higher over the week, supported by the benign consumer price index print out of the United States, which saw global bond yields (outside Japanese Government Bonds) lower.
Australia
In Australia, the release of the latest consumer confidence data showed a negative outlook. And while the latest jobs report recorded a solid pickup (net +56,000 versus +15,000), this was on the back of growth in part-time jobs (+80,000), with full-time employment declining (-24,000), leading to a slight pickup in the unemployment rate to 4.0% (+0.1%). Nevertheless, the overall jobs market remains resilient, although the weakness in full-time jobs was not expected and continues to point to an overall weaker outlook for the domestic economy.
The US
This week the focus will be on Purchasing Managers’ Index data (January). While the service side of the economy is showing some level of expansion, manufacturing continues to contract. While the inauguration of President Trump alongside the immediacy of any Presidential executive orders will gather all the headlines this week, United States jobless data and Purchasing Managers’ Index data will also be in focus. Overall, United States economic data remains sound, but markets will be keenly anticipating the outlook for tariffs and implications around trade. While the potential for a punitive tariff policy by the United States remains a distinct possibility, we expect actual outcomes to be less aggressive. Overall, we continue to view tariffs as a negative for both global economic activity as well as the broader fight against inflation, which continues to remain elevated relative to central bank target levels, despite moderating through 2024.
China & Europe
In China, export data (+10.3% year-on-year, +4.0% previous corresponding period) continues to remain strong, reflecting China’s approach to ‘exporting’ its way out of its current economic malaise as well as many global companies front-loading inventory orders before the potential increase in tariffs. The increase in exports has helped propel gross domestic product growth in China over 2024, although ongoing weakness in domestic demand, alongside a weak property market and ongoing trade tensions with the United States, remain the biggest impediments to growth.
The UK & Europe
In the United Kingdom, core consumer price index data came in lower than forecast (3.2% year-on-year), while in the European Union, it was in line at 2.4% year-on-year, opening the door for further cash rate cuts by both the European Central Bank and Bank of England into the first quarter of 2025.
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