CFS Market Update: January - February 2024

• The first monetary policy decisions of 2024 by major central banks provided a welcome start to the year with the European Central Bank (ECB), the Federal Reserve (Fed) and the Reserve Bank of Australia (RBA) all leaving interest rates unchanged
  
• Australian economic forecast is positive off rate relief expectations and employment growth
• About half the world’s population will go to the polls this year, representing 80% of the world’s share markets
• Experts are monitoring the Evergrande liquidation for any potential adverse fallout, meanwhile China’s manufacturing sector stays in positive territory for the third straight month.

The RBA met over 5-6 February and left the interest rate at 4.35 per cent, kicking off its new rhythm of eight meetings a year versus the previous 11. This would allow the Board more time to make a deeper assessment on how its decisions are affecting the economy. It had previously acknowledged that monetary policy operates with a lag and therefore allowed time for households and businesses to adjust.

In its board minutes, the RBA noted that economic data had given them more confidence for inflation returning to target within a reasonable timeframe, while allowing employment growth to continue. It said whilst inflation had moderated, it was still high and therefore did not rule out further rate increases.

The ECB held its first monetary policy decision of 2024 on 25 January, keeping rates at the range of 4 – 4.75%.

The central bank said recent data had broadly confirmed the declining trend in Eurozone inflation. However, as stated following previous monetary decisions, it will continue to rely on data and would not discuss the timing of rate cuts.

The Fed followed with its decision on 31 January, holding interest rates at the current range of 5.25% to 5.50%.

In January, the US labour market saw an upswing in hiring as well as strong wage growth, significantly exceeding market expectations. Market commentators underscored that a weaker labour market was not a prerequisite for interest rate cuts rather, the Fed wants to continue to see inflation come down. Previously, it had signalled its forecast for multiple rate cuts in 2024.

Central bank decisions will continue to be based on the economic outlook, relevant data and any evolving or new risks. The next monetary policy meetings are scheduled on 7 March for the ECB, 18-19 March for the RBA and 20 March for the Fed.

The big news over in China at the end of January was the court-ordered liquidation of property developer Evergrande. Markets are closely monitoring broader economic instability as a result, as well as what may happen next for global markets.

Despite weaker forecast expectations, China’s Caixin/S&P Global manufacturing purchasing manager’s index (PMI) was unchanged at 50.8, remaining the same since December and marking the third straight month of growth in activity. A PMI result above the 50-point mark considers activity to be in growth or expansion.

Need a refresher? Here’s what happened in markets back in November-December,  October, September, August and July.

Following the aggressive hike campaigns by the central banks, the taming of inflation was on track without triggering a recession, so most economies ended 2023 in good shape.

The Australian economy is likely to be in better condition to go up against any new geopolitical challenges, having proven itself resilient after last year’s destabilising events.

What does this year have in store for investors and super members? Many market experts are feeling optimistic when it comes to what will happen with interest rates going forward, as it’s been predicted relief in the form of cuts will occur during 2024. This is alongside positive employment growth.

That’s good news for mortgage holders, as well as the general Australian population struggling with the cost of living and looking to prioritise savings and investments, boosting their super and for those nearing it, planning their retirement.

Market events for the year ahead will be a mix of knowns and unknowns.

When it comes to the knowns, there are still residual inflation issues so this will continue to be a feature in global markets.

With about half of the world’s population going to the polls this year, 2024 has also been labelled as the year of political elections. This includes major populations like India, nine countries in Europe, including some major economies like Germany and most likely, the UK. One of the most important elections of all for markets will be the US presidential election in November.

With elections comes the possibility of new governments and policies that can significantly influence and affect markets.

When it comes to the unknowns, the Middle East conflict remains ongoing and a US recession is still on the cards, albeit taking longer to play out when compared to previous market cycles.

Meanwhile in China, market expert commentary is echoing the need for further policy stimulus and decisive actions for its recovery, as its 2023 drip-fed initiatives were not enough against its property sector challenges.

With the ongoing fallout from current geopolitical events playing out in 2024 – that is, political activity relating to geography, such as the conflict in the Middle East – we’ve unpacked what they mean in How do global events affect my super and investments?

If you’re wondering about whether you should make changes to your investments, we recommend connecting with your financial adviser to review your investment goals, identify any potential opportunities, and make changes if necessary. 

If you don’t have an adviser, you can find an adviser near you using our Find an Adviser service at cfs.findadviser.com.au. Call us with any general queries on 13 13 36, Monday to Friday, 8:30am to 6pm Sydney time (+612 8397 1100 from outside of Australia).