Australian markets were influenced in July by a slight softening in inflation data that saw bond markets go from pricing in a potential rate hike at the next RBA meeting (5th - 6th August) to a potential rate cut by February. This lifted Australian equites to new highs and also saw bond yields fall (prices increase).

In June US inflation for the year to May was released with the annual rate of inflation falling to 3.3% (down from 3.4% the previous month) which is still much higher than the US Federal Reserve’s targeted 2% inflation rate. US bond yields responded favourably to the improved inflation data over the month.

In May US inflation for the year to April was released with the annual rate of inflation falling to 3.4% (down from 3.5% the previous month) which is still much higher than the US Federal Reserve’s targeted 2% inflation rate. Despite the higher inflation print bond yields, or to put it another way, the expected future cash rates fell assisting US equity valuations.

In April equity markets reflected a change to valuations as the likelihood of cash rate cuts in 2024 lessened and investors began to factor in a “higher for longer” interest rate backdrop. Broadly speaking international and Australian equity markets were weaker by around 3% and Australian Real Estate Investment Trusts (AREITs) after rising by 10% in March sold off by 8% in April, reflecting the higher for longer bond rate thematic.

In March equities moved higher and many markets continued making new all-time highs as bond yields fell slightly driven by the further expectation that central bank rate cuts are due to occur in 2024. However, the Bank of England, the European Central Bank and the US Federal Reserve are yet to cut rates after their recent tightening cycles.

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If you were asked to list your most valuable assets, your home, vehicle and investment portfolio would probably top the list. But it’s easy to overlook the thing that allowed you to accrue all these in the first place: your ability to earn an income.

Australians trying to break into the property market today face their fair share of challenges. Property prices have risen at a much quicker pace than incomes, and the high cost of living can make saving a deposit seem next to impossible.

In February as per in January the US and Australian equity markets continued to move higher and achieve further new all-time highs. During the month US inflation fell to 3.1% annually from 3.4% driven by a decline in petrol prices. Offsetting lower petrol prices were higher housing and food costs. It’s worth noting that Core Inflation (which excludes volatile items such as food and energy) was flat at 3.9% annually. Australian inflation was reported late in February and came in at 3.4% annually, the same level as the prior month. The conclusion from these data prints is that whilst inflation is to a degree contained, there’s still a way to go before inflation is back between 2-3%. Longer dated bond yields rose in the month reflecting this dynamic.

In January the US and Australian equity markets achieved new all-time highs delivering returns for the 12 months to 31st January in their local currencies of 20% and 7% respectively. US equities were lifted by the strength of the “Magnificent 7” labelled stocks being Microsoft, Meta Platforms, Tesla, Apple, Alphabet, Amazon, and NVIDIA. The rally in equities was driven by cooling inflation coupled with the expectation that a hard landing, i.e. a recession, will be avoided and that cash rate reductions will start to occur soon. Therefore, risks to equity returns going forward have lessened. Bond yields didn’t move significantly in January noting that in December yields fell significantly reflecting the future potential cash rate reductions due in 2024 and 2025.