Research Insights - Market Commentary January 2023
Equity markets surged in January, aided by falling bond yields resulting from lower-than expected US inflation data, along with optimism regarding the rapid re-opening of the Chinese economy as it unwound severe Covid-19 restrictions. Australian inflation came in above expectations at 7.8% over the year to December 2022, though markets largely shrugged off the reading as potentially the peak inflation reading for the cycle.
The Australian share market was up 6.3% in January, with all sectors except Utilities gaining ground. Consumer Discretionary stocks were the best performing sector, rebounding strongly as a number of companies reported strong sales numbers. Notwithstanding this, official retail sales data released towards the end of January from the Australian Bureau of Statistics (ABS) showed retail sales weakened by (-3.9%) year-over-year to end December 2022.
Australian Real Estate Investment Trusts (AREITs) posted a return of 8.1% reflecting the large fall in Australian bond yields.
Currency-hedged international equities rose 6.2% while unhedged international equity returns were up 3.0%, blunted by a strengthening Australian dollar that was up 3.6% in January to close at US $0.7055.
The Australian 10-year government bond yield fell by 50bps to 3.55% and the 2-year government bond yield fell by 28bps to 3.12%. The US 10-year government bond yield fell by 37bps to close at 3.51% and the US 2-year government bond yield fell by 22bps to 4.20%.
Key Developments Post Month-End
The RBA raised the cash rate in February by 25bps to 3.35% and the US Federal Reserve also lifted its cash rate by 25bps to a target range of 4.5-4.75%. The European Central Bank and the Bank of England each lifted their cash rates by 50bps to 2.5% and 4.0% respectively.
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