Research Insights | Market Commentary December 2023
In December bond yields continued their retreat (prices increased) which in-turn caused growth asset prices to also increase further. This rapid change in direction of bond yields over the last two months has helped to deliver a 5% return in passive fixed income investments for the year and has also seen strong gains from growth assets with Australian equities up ~12% and International equities (both currency hedged and unhedged) up over 20% in the last 12 months.
Both the Reserve Bank of Australia (RBA) and the US Federal Reserve (FED) kept interest rates on hold in December at 4.35% and 5.25-5.50% respectively. However, with US inflation now running at an annualised rate of 2% in the third quarter (down from 4% at the start of the year), members of the FED indicated that at least three rate cuts were on the cards for 2024 and a further four cuts penciled in for 2025 causing bond yields to rally.
Australia’s unemployment rate increased ever so slightly in November to 3.9%. The increase in the unemployment rate was due to more people seeking work which led to a record high participation rate – something the RBA will be keen to understand better before they consider a potential cash rate cut.
Australian large cap Equities rose by 7.2% with all sectors positive. Real Estate and Healthcare where the best performing sectors delivering 11% and 9% respectively for the month. Hedged global equities rose by 3.9% whilst unhedged global equities rose by 1.8%, as the Australian dollar strengthened by 3% in the month to US$0.6812.
The Australian 10-year government bond yield decreased by 46bps to 3.96% and the 2-year government bond yield decreased by 40bps to 3.71%. The US 10-year government bond yield fell by 45bps to close at 3.88% and the US 2-year government bond yield decreased by 43bps to 4.25%.
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