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Global markets continued the surge that commenced in late October. Speculation of rate cuts, soft landings, and a fervour for the rise of artificial intelligence facilitated this ongoing market performance. The Japanese market rose 20% more than doubling the returns of its western peers. Investors were enthusiastic about wage growth, corporate reform and the chances of ending a negative interest rate regime. Impressively, Australian small capitalisation stocks were next in line, rising 13%, strongly outperforming their US peers. The AUD fell against most major currencies and 10-year government bonds remained stable at 3.98%, a discounted yield to US treasuries. Commodities were mostly weaker, especially iron ore, coking and thermal coals which fell 10-25%. Gold and oil prices rose.

 

The US economy continues to push forward. Unemployment has edged up slightly to 3.9% from 3.7%. Inflation has eased more slowly than expected and this does not appear to have been lost on consumers where retail sales have advanced at lower rates than anticipated by commentators. Amongst the chatter of Federal Reserve Board (FED) members suggesting lower rates, committee member Daly said that there was no consistent evidence from either inflation data or the labour market indicating that rates needed to be cut.

 

The 2024 Chinese National People’s Congress disappointed the market in terms of expectations for economic stimulus. Trade and investment driven growth agendas were seen as positive. On the other hand, the lack of support for the troubled housing sector was expected to continue crimping consumer wealth and therefore the outlook for more broad-based economic growth. A 0.25% cut to the 5-year loan rate added to a slew of interest and deposit rate reductions.

 

Japan escaped a technical recession with the aid of good levels of capital expenditure. Fourth quarter GDP growth rose a meagre 0.1% over the quarter. Following shunto wage negotiations, large corporates agreed to a 5.28% increase in 2024 wages resulting in the largest wage increases for over 30 years. This in turn led the Bank of Japan (BOJ) to end the last negative rate regime globally – on excess balances at the BOJ. Monetary policy in Japan was tightened by the BOJ for the first time in a decade from -0.1% to 0.1%.

 

Europe and the UK face economic growth rates that all but resemble the economy of Japan. The European Central Bank (ECB) is considering rate cuts in June. The Bank of England (BOE) is worried about supply side constraints and considers the reduction in rates to be too early at this stage.

 

The Australian economy has slowed further to very weak levels. Fourth quarter GDP rose 0.2%. Softer imports confirmed a weak consumer and this has been supported since by January dwelling approvals. The labour market has softened though remains tight. Consequently, services inflation has remained elevated, staying the hand of the Reserve Bank of Australia (RBA). Unemployment has edged up only slightly to 4.1% and a constrained housing market contributes to RBA caution.