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Quick TakeGlobal financial markets recorded a fourth consecutive month of gains in February, with Japan notably surpassing its 1989 record high. Iron ore prices declined in February due to ongoing struggles in the Chinese economy, dampening expectations for the construction sector despite earlier hopes pinned on stimulus measures. The prevailing theme across markets in February was one of patience. In the US, higher-than- With inflation easing towards central bank targets, we remain cautiously optimistic for markets |
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Global financial markets finished higher in February, marking the fourth consecutive month of gains.
Japan had a particularly strong month, finally surpassing the record high last set in 1989, while the Australian Dollar was relatively unchanged against major currencies. For the first time in a while, however, Australian bond yields diverged from their global counterparts, finishing broadly flat, while US and European bond yields moved higher.
Commodity markets witnessed mixed performance, with iron ore notably weak due to the continued slowdown in the Chinese economy.
This decline dashed hopes for a rapid recovery in the construction sector heavily reliant on steel. Despite reaching a peak of US$145 in early January on the back of anticipated Chinese stimulus measures, iron ore prices fell to US$115 in late February as these measures failed to produce significant economic improvements.
Throughout February, the main theme in markets was one of patience. The ebullient mood from
December and January moderated somewhat, as inflation data proved more stubborn than anticipated and interest rate markets repriced expectations of rate cuts this year and next.
In the US, the Consumer Price Index for January exceeded expectations, rising by 0.3% month-on-month, driven primarily by a 0.6% increase in shelter costs. Although this data indicates a stronger-than-expected inflationary trend, recent reports suggest softer rental growth, mitigating concerns.
Consequently, the futures market now predicts the US Federal Reserve will maintain interest rates in March and May, before implementing a 0.25% cut in June.
In Australia, despite slowing growth and declining inflation, the Reserve Bank of Australia (RBA) maintained the interest rate at 4.35% in early February for the second consecutive meeting.
Governor Michele Bullock reiterated the board's commitment to achieving the 2-3% inflation
target by 2025. Moreover, Australia's Consumer Price Index recorded a 3.4% increase over the last 12 months to January, remaining steady from December.
This represents the lowest annual inflation rate since November 2021, further supporting market
expectations of a 0.25% rate cut by the RBA in September.
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.