Snapshot
Global financial markets finished higher in March, marking the fifth consecutive month of gains. This was supported by several factors including the resilience of the US economy and corporate profits, growing enthusiasm surrounding artificial intelligence technology, and anticipated interest rate reductions throughout the year. However, commodity markets exhibited a mixed performance during the same period. While gold and oil prices rose, iron ore prices fell due to the ongoing slowdown in the Chinese economy.
Furthermore, March also incorporated several important central bank meetings, including the Reserve Bank of Australia (RBA), the Bank of Japan (BOJ), and the US Federal Reserve (Fed).
The RBA unsurprisingly opted to maintain the cash rate at 4.35% following its meeting. The central bank stated the “path of interest rates that will ensure that inflation returns to target (of 2–3%) in a reasonable time-frame remains uncertain, and the Board is not ruling anything in or out”. The market took this as an indication the central bank’s tightening bias had eased to instead favour a more balanced stance, with the market expecting the first 0.25% rate cut by the RBA in September.
The BOJ meanwhile made significant policy changes by discontinuing negative interest rates after eight years and unwound most of its unconventional monetary policy measures. This decision was made in anticipation of achieving stable inflation in Japan. As a result, the BOJ raised interest rates from –0.10% to a range of 0.00–0.10%, marking the end of the global era of negative interest rates that began in the 2010s.
Other central banks that previously implemented negative rates, such as the European Central Bank and the Swiss National Bank, have also transitioned back to positive territory in response to inflationary pressures stemming from the COVID-19 pandemic and the conflict in Ukraine.
Despite robust economic growth and higher-than-expected inflation leading up to its meeting, the Fed chose to maintain interest rates at 5.25–5.50%. The Fed's projections, as reflected in the so-called dot plot, continued to indicate expectations of three rate cuts in 2024, consistent with previous forecasts from December.
Fed Chair Jerome Powell acknowledged the persistent inflationary pressures over the past two months, emphasising the importance of interpreting data cautiously. At the time of writing, the market anticipates the first 0.25% rate cut by the Fed will occur in June.
We remain cautiously optimistic for the year ahead given the progress that has been made. Inflationary pressures have alleviated somewhat, with core inflation metrics nearing central bank targets on an annualised basis.
Thus, 2024 presents a favourable market environment as the path towards lower rates becomes clearer.
Key Stocks
Wade is the head of the Investment Services division at Cutcher & Neale and has over 15 years of industry experience in accounting and investment advisory roles.
Wade guides his division on the belief that investment portfolios should be built on transparency and flexibility. His expertise focuses on direct portfolio exposure to both Australian and Global Investment markets.
