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It was an extraordinary start to April, with Trump formally announcing reciprocal tariffs in what he declared “Liberation Day” for US trade policy. Trump set a base 10% tariff on all US imports. Canada and Mexico were exempt from the 10%, but were subject to a 25% tariff on goods not covered by their existing free trade agreement. Higher rates were announced for a host of countries based on a combination of their tariffs, consumption taxes, government support and trade surpluses with the US.
A tit-for-tat escalation of tariffs proceeded to take place between the US and China. Trump then announced that he had suspended the reciprocal tariffs for most countries for 90 days, to allow for a period of ‘negotiation’. However, the tariffs on China were subsequently increased to a total of 145%.
The period between the 2nd and 9th of April (between Liberation Day and the announcement of a suspension) was tumultuous. Financial markets found few havens outside of gold, with Trump finally yielding to pressure from the bond market, where the long-term cost of debt was escalating. A relief rally was then followed by a steady rise in equities and decline in bond yields, with traders increasing expectations that the US Federal Reserve (the Fed) would recommence its rate-cutting cycle.
The MSCI ACWI ex-Australia index delivered a total return of -1.7% to unhedged domestic investors in April, as a 2.5% appreciation in the Australian dollar weighed on global equity returns.
The S&P 500 declined for a third consecutive month, down 0.8% as stunning tariff policy announcements added to market volatility. The S&P 500 briefly entered bear territory (-20%) on an intraday basis on April 7th after reaching an all-time high on February 19th. The S&P MidCap 400 decreased 2.3% in April, while the S&P SmallCap 600 lost 4.3%. Meanwhile, the Dow Jones Industrial Average declined 3.2% in April. Finally, the Nasdaq 100 gained 1.5% for the month, while the broader Nasdaq Composite index improved 0.9%.
Throughout April, the dramatic changes to trade policy led to several companies lowering or withdrawing guidance due to elevated uncertainty. Overall, US markets underperformed global peers. Growth stocks outperformed their value counterparts, mainly due to a slump in energy stocks.
Emerging markets performed in line with the broader global MCSI index, as Mexico and Brazil delivered positive returns.
ASX shares ultimately finished strongly in April, with the XJO price index trading in a 13.3% range during the month. There were strong performances across most sectors, with energy and resources being key exceptions. Some investors viewed the domestic market as being relatively shielded from changes in US trade policy, with big pension funds said to be seeking the safety of Australian blue chips. In terms of sectors, Telcos, Info Tech and A-REITs were the best performers, buoyed by falling yields and from rising market expectations that interest rate cuts were in the offing. The Gold sub-sector also posted another strong month, thanks to the uncertain environment.
Fixed interest markets also experienced higher-than-average volatility during the month. Investor fears of stagflation ultimately gave way to a greater focus on the likelihood of recession. The potential for a growth slowdown saw Fed funds rate traders positioning for four rate cuts in 2025 and a fifth cut early in the new year, with a similar outlook for Australian interest rates. Credit spreads moved in line with changes in sentiment throughout April, with higher quality credit markets remaining resilient.
Finally, commodity prices weakened late in the month, with oil prices slumping amid rising recession fears and a decision from OPEC+ members to increase output. Copper prices also finished lower. The gold price marked a new all-time high, exceeding US$3,500 on April 22nd.
Australia
In domestic economic news, another strong jobs report kept the unemployment rate at 4.1% in March. At the beginning of the month, the RBA held the cash rate at 4.1%, just before the Trump announcement on reciprocal tariffs that disappointed markets. Minutes from the RBA’s April board meeting released later in the month revealed the board was open to cutting interest rates after the federal election, once it had the latest information on inflation and trade policy. Indeed, March quarter CPI data revealed that the RBA’s preferred measure of underlying inflation dipped below 3% for the first time in more than three years.
United States
On the economic front, the US posted a stronger-than-expected jobs report for March, but the unemployment rate ticked up to 4.2% on increased workforce participation. Workers’ average hourly earnings rose by 3.8% over the year, a bit lower than the 4% forecast and nearing the 3.5% gains seen as consistent with the Fed’s 2% inflation target. Elsewhere, underlying US inflation cooled broadly in March, indicating some relief for consumers before widespread tariffs that risk contributing to price pressures. The core CPI, which excludes food and energy, increased by the least in nine months to be up by 2.8% over the year. The overall CPI posted a small decline from a month earlier, the first decrease in nearly five years, and rose 2.4% over the year.
In early April, during a sharp sell-off in financial markets, Fed Chairman Jerome Powell noted, “While uncertainty remains elevated, it is now becoming clear that the tariff increases will be significantly larger than expected. The same is likely to be true of the economic effects, which will include higher inflation and slower growth.”
Rest of the world
Elsewhere, on the Continent, the European Central Bank cut interest rates by 0.25%, bringing the deposit rate to 2.25%. The monetary policy statement viewed the disinflationary process as “well on track” and noted that the “outlook for growth has deteriorated owing to rising trade tensions.” Finally, increasing confidence about the prospect of lower interest rates provided support for European government bond markets throughout April.
If you want to discuss any of the above information or your personal investment strategy, then book a chat with your financial adviser here.
The year began strongly, with January delivering bumper returns across financial markets. Equities performed strongly, while fixed interest investors benefited from lower yields and tighter credit spreads. Having disappointed investors in its December meeting, the US Federal Reserve (the Fed) was on its best behaviour at its January meeting. Chairman Jerome Powell avoided uttering Trump’s name during the presser and reiterated that the Fed was not considering an increase to its 2% inflation target. Powell also avoided directly engaging with Trump’s statements about his desired interest rate moves and economic policy. In a worrying sign late in the quarter, the Fed reduced its 2025 median real GDP forecast while raising its unemployment and core inflation outlook.
The big stock news in January focused on DeepSeek’s extraordinary AI-related announcement. This sparked fears that US companies might be overspending on AI infrastructure and that Nvidia’s premium pricing for GPUs could be challenged. Investors worried that the demand for Nvidia’s high-performance AI chips might decrease if more cost-effective solutions become readily available. The news triggered a sell-off, and Nvidia experienced a US$589 billion reduction in its market capitalisation, marking the largest single-day decline in stock market history.
February proved to be a tale of two halves. The first half embodied confident investors and soaring sentiment, with equity markets regularly forging new record highs and analysts cheering them higher still. But the seasonal gloom that so often besets the latter half of February and early March rained on the market’s parade. The Trump administration’s persistent tariff announcements handed financial markets a long-overdue reality check. Were the Trump tariffs just a temporary aberration and a simple bargaining chip, or were these the new rules of the game?
Economic, political and geopolitical events ruled the headlines throughout February and March. Tit-for-tat tariff announcements by the US and a host of nations, including Canada and China, made for unedifying viewing. More broadly, the US economy showed signs of a sudden slowdown while political figures squabbled over the speed and extent of policy implementation. A welcome development from a US perspective was that global allies scrambled to implement new defence spending measures to fill the void created by the new administration—with Germany the main protagonist on this front. However, the uncertainty around all things US (eg. Trump) was so great that the greenback retreated against many major currencies. Meanwhile, the regime-enamoured crypto sector suffered a significant retracement in February and failed to recover these losses in March. Conversely, gold soared above US$3,000 an ounce as investors contemplated the risks of an inflation rebound and further geopolitical volatility.
Summarising quarterly performance, defensive asset classes were positive across the board. The domestic composite bond index slightly outperformed cash, while domestic credit posted returns almost in line with global peers. Yield curves were noticeably volatile, with lower yields early in the quarter making way for a sharp upward shift as investors wrestled with the inflationary consequence of a potential global trade war.
Among risk assets, in US dollar terms the benchmark S&P 500 lost 4.3% including dividends. The Magnificent 7 wore the lion’s share of the losses. All else being equal, the S&P 500 would have gained 0.5%, absent the Magnificent 7. The Dow Jones Industrial Average shed 1.3% in the March quarter, while the Nasdaq 100 slumped 8.3%, and the broader Nasdaq Composite posted double-digit losses.
Total returns for the ASX 200 printed in the red to the tune of 2.80%, with dividends comprising 107bp (meaning the ASX200 headline price lost 3.87%). Information technology had a shocker at the sector level, losing 17.5%, and Healthcare gave back 9.1%, while the A-REITs slumped 6.8% thanks to a dilutive capital raising by index heavyweight Goodman Group. The Gold sub-industry boomed by over 30% at the opposite end of proceedings. Industrials and Utilities posted total returns in excess of 2%, while Materials and Consumer Staples finished just above water.
In economic news, Australia saw the participation rate soar as workers entered and re-entered the workforce in a bid to keep up with the cost of living. On the inflation front, Australia’s quarterly CPI data showed further moderation in underlying price growth. Trimmed mean inflation—the RBA’s preferred measure—slowed to 3.2% annually, just below consensus. Of note, annual non-discretionary inflation printed below discretionary inflation for the first time in nearly four years. This all culminated in the RBA cutting the cash rate by 25bps to 4.1%, its first cut in more than 4 years.
On the growth front, the December quarter national accounts showed GDP increased 1.3% compared to a year ago. Due to stronger public sector spending, the annual growth rate was slightly above the RBA’s updated forecast of 1.1%. Activity in interest rate sensitive parts of the economy increased but remained subdued. Overall, momentum picked up broadly across the economy, and the per capita recession that ran for seven quarters ended in late 2024.
Meanwhile, growth in the US was weaker than expected, dragged down by reduced investment spending and business inventories. Households and businesses appeared to bring forward spending in the lead-up to the presidential election, fearing that a Trump administration would add to price pressures from the proposed tariffs. The Fed remained on pause during the quarter as the jobs market in the US remained solid.
Elsewhere, the European Central Bank (ECB) continued its interest rate cutting cycle in the March quarter, due to tepid growth and moderating inflation. The ECB acknowledged that monetary policy is becoming meaningfully less restrictive, easing borrowing costs for businesses and households. It noted that inflation was expected to ease further, albeit at a slower rate. The ECB also warned on wage-driven costs, which it believed would see further lagged effects come through in the first half of 2025. Economic growth forecasts were revised downward, reflecting weak exports and investment.
In China, factory activity continued to slowly expand in March, while the non-manufacturing measure of activity in the construction and services sectors also pointed to modest expansion. Aside from the concerns being posed by punitive US tariffs, China’s property deflation continues to worry policymakers. New home prices in 70 cities again declined during the March quarter. The authorities emphasised that tackling the extended downturn is one of its primary objectives in 2025 and announced plans to implement city-specific measures for easing homebuying restrictions, and harnessing demand by potential first home buyers.
On April 2nd 2025, President Trump announced sweeping tariffs under his “Liberation Day” trade reset. A universal 10% tariff on nearly all US imports took effect April 5th, while targeted “reciprocal tariffs” on 57 nations were set for April 9th. The policy aimed to address trade deficits, but triggered a share market slump on fears of a global recession and potential stagflation. The tariffs marked the most aggressive US trade shift since the 1930s, when the Smoot-Hawley Act raised tariffs and escalated into a global trade war that deepened and prolonged the Great Depression.
In a bid to isolate and slow the rise of China, Trump announced the highest rates on its growing rival. China retaliated by hiking tariffs on US goods. The White House subsequently clarified that Trump’s previously-announced 125% figure for tariffs against China is actually 145%, once his previous 20% fentanyl tariffs are accounted for.
A 90-day pause on some tariffs aimed to ease negotiations. Canada and Mexico were largely exempted, maintaining USMCA trade agreement terms. Separately, the EU put its steel and aluminium tariff retaliation on hold for 90 days to match Trump’s pause.
Throughout this period, financial market volatility has spiked to very high levels. The US VIX Index (often called the “fear index”), which is a measure of expected volatility in shares, soared to above 50. The S&P/ASX 200 VIX Index also reached high levels. Meanwhile, there was no respite for investors in the bond market, where implied volatility for US Treasurys spiked to 40% above the long-term average. Despite rising risks around a recession, bond yields in the US have generally remained above 4%.
Businesses and households brought forward investment and consumption spending in late 2024 in anticipation of higher tariffs. On this basis, recent weakness initially looked like it would be temporary. However, in their most extreme form, the proposed tariffs represent a material growth shock, which could tip the US and the globe into recession. Such a downturn would hurt earnings and markets as more and more companies look to lower or remove guidance (indeed, this trend has already commenced).
Prior to the April 2nd tariff announcement, our base case for the US was it would likely avoid recession in 2025 and that the Fed would be unable to progress its rate-cutting cycle due to sticky inflation. However, the scope and severity of the proposed tariffs have made the prospect of recession a 50/50 proposition. The potential for the Fed to cut rates has also risen due to the likely impact on the jobs market of some version of the tariffs actually coming into force. If job destruction commenced in earnest, we would expect the Fed to respond with moderate cuts.
More dramatic rate cuts are less likely due to the inflationary pressures coming through the pipeline in the second half of this year. This is also because it risks reigniting term premia in treasury markets, thereby further steepening yield curves at a time when issuance is about to increase.
In the March Fed meeting, officials assessed that risks were weighted to higher inflation, unemployment, and lower growth. If the current tariff proposals do not change much, any potential recession will likely lead to a stagflationary environment. In practical terms, inflation would be expected to outpace wage growth and translate into weaker household spending and reduced business confidence. To be clear, it is the inflation part of the equation that best explains why bond markets have not been able to stage or sustain a searing rally in early 2025. Also, fewer investors might wish to hold USD-denominated bonds due to elevated sovereign risk—something that is not generally associated with the US.
Given that markets overshoot to the upside and downside, there is scope for equities to grind lower (recall the bear market response to stagflation in the mid-1970s). But if Trump signals that this is really a negotiation rather than the new rules of the game—markets would likely react favourably to that. To this point, the administration is being deliberately unclear and ambiguous. We think tariffs are here for the long term but will be sensitive to a whole host of issues, often geopolitical in nature.
Turning to matters domestic, the RBA estimates that a full 1% of GDP would be lost if there were to be a global trade war. Historically, the RBA has responded to emergency situations by cutting rates (eg. GFC, Covid, etc.) Interestingly, if China responded with a massive stimulus, this could reduce the damage to the Australian economy and the ASX more broadly.
US tariffs on the likes of Canada and the EU could have the unintended consequence of driving some nations closer to China for trade partnerships in technology and manufacturing. This would infuriate the Trump administration, particularly given efforts to reconfigure supply chains since the pandemic to reduce reliance on China. If China somehow came to benefit over the medium term at the expense of the US, this could increase the prospects of a conflict between these nations.
This Trump term ends at the beginning of 2029, and there are no guarantees around what the next administration would do. But if the tariffs did succeed in reinvigorating traditional industries, there will be immense pressure for these to remain in place, regardless of who wielded power. As we said in our previous quarterly outlook, we “would not be surprised if investors were in for a rollercoaster ride.” This means periods of relative calm and eruptions of volatility, potentially positioned around circuit-breaking deals and disappointment.
It is that time of the year again, and Treasurer Jim Chalmers delivered the Government’s 2025-2026 Federal Budget.
As expected, Labor’s fourth Budget centred on easing cost-of-living pressures with the welcomed surprise of proposed tax cuts. Super remained mostly untouched—no updates on Division 296 tax measures or residency rules for small super funds.
We have summarised the key points which impact financial planning strategies below, and you can view the full Government Budget details here.
For our ongoing service package clients, your adviser will be in contact to provide guidance on changes that may impact your strategy.
IMPORTANT: Please remember that these measures are subject to becoming law, so confirm this before taking action.
The Government has proposed tax cuts in the form of a tax rate reduction to be introduced over two years, delivering a savings boost for Australian taxpayers. This will be achieved by reducing the 16% tax rate that applies to taxable income earned between $18,201 and $45,000.
The Government will reduce the current 16% income tax rate as follows:
As outlined in the table below, there has been no proposed change(s) to either the personal income tax thresholds, nor to any of the other personal income tax rates.
The outcome is a tax saving of $268 in 2026-2027 and $536 per year from 2027-2028 for taxpayers earning over $45,000.
The Government will increase the Medicare levy low-income thresholds by 4.7% for singles, families, seniors and pensioners from 1 July 2024 to provide cost-of-living relief.
The increase to these thresholds aims to ensure that low-income individuals continue to be exempt from paying the Medicare levy or pay a reduced levy rate.
The Government will allocate $50 million over three years from 1 July 2026 to extend the Tax Integrity Program.
This will enable the ATO to continue its engagement program to ensure timely payment of tax and superannuation liabilities by medium and large businesses and wealthy groups. This measure is estimated to increase receipts by $31 million in unpaid superannuation to be disbursed to employees.
The Government has announced the extension of energy bill relief for eligible Australian households and small businesses until 31 December 2025. This measure, which provides $150 in relief paid as $75 over two quarters, aims to alleviate the cost-of-living pressures.
From 1 January 2026, it’s proposed the Pharmaceutical Benefits Scheme (PBS) general patient co-payment will be reduced from $31.60 to $25.00, with concession card holders continuing to pay $7.70 for PBS-listed medicines.
Outstanding Higher Education Loan Program (HELP) and other student debts are proposed to be reduced by 20 per cent from 1 June 2025.
In addition, from 1 July 2025, the Government has proposed to increase the amount that people can earn before they are required to start paying back their loans from $54,435 in 2024–25 to $67,000 in 2025–26.
On top of this, compulsory repayments will be lower for people earning under around $180,000 and above the current minimum threshold.
The Government proposed to increase funding for the Help to Buy program by $800 million, so more first time home buyers can purchase a property.
Income caps will increase from $90,000 to $100,000 for singles and from $120,000 to $160,000 for joint applications.
In addition, the property price cap will be increased (these vary depending on location).
If you have any questions or would like further clarification in regards to any of the above measures outlined in the 2025-2026 Federal Budget, please feel free to book a chat with your adviser.
February brought a new reality check for investors who may have viewed the Trump tariff announcements as an aberration or a bargaining chip. Economic, political and geopolitical events regularly dominated the headlines. The US economy showed signs of a sudden slowdown, and political figures squabbled over the speed and extent of policy implementation. At the same time, global allies of the US scrambled to implement new defence spending measures to fill the void being created by the new administration.
So great was the uncertainty around all things US that the Australian dollar rose against the greenback, and the regime-favoured crypto sector suffered a significant retracement.
Financial markets were interrogating the prospects of higher prices from new tariffs against the US’s largest trading partners. Commencing early March, tariffs are being imposed on Mexico, Canada and China. Meanwhile, reciprocal tariffs and non-tariff barriers will come into force in early April, which are expected to have a heavy impact on Europe.
The fallout of these restrictive trade policies hurt global small cap returns in February, as growth concerns outweighed the valuation benefits of lower yields.
The MSCI ACWI ex-Australia index delivered a total return of -0.2% to unhedged domestic investors in February, as sentiment soured later in the month and US megacaps lost share price momentum.
In the US, communication services and consumer discretionary were the worst performing sectors, while consumer staples, energy and real estate delivered positive returns over the month. In US dollar terms and excluding dividends, the benchmark US S&P 500 index fell 1.4% in February, and the tech-heavy Nasdaq lost 2.8%. Meanwhile, the price-weighted Dow Jones Industrial Average declined 2.8% for the month.
Closer to home, the ASX 200 slumped in February to the tune of 3.8%, including dividends, with small cap peers and the listed property sector also finishing deep in the red. The best ASX returns in February were seen among the more defensive utilities and telcos sectors. However, steep losses were seen in technology, health care and listed property. The February interim reporting season was underwhelming but contained few surprises and generally met the low expectations of domestic investors. The gold mining sector again posted a positive return, helped by heightened geopolitical uncertainty.
Elsewhere, the TOPIX was 3.8% lower in local currency terms as the export-oriented Japanese economy was expected to be disproportionately hurt by the new trade barriers.
In Europe, defence stocks led the charge, with the MSCI Europe ex-UK index 3.4% higher in local currency terms. European shares are nearly 11% higher in the current quarter as investors seek value outside of the Magnificent Seven.
Returns were broadly positive across defensive assets. Fixed interest led the way as strong inflows and capital gains implied lower bond yields across many fixed rate debt securities. In Australia, the composite bond index was 0.9% higher, while the global aggregate bond index jumped by 1.2%. Of great local significance, the Reserve Bank of Australia (RBA) cut the official cash rate by 0.25% to 4.10% as expected but suggested that futures traders were too bullish in their positioning for further rate cuts. We note that as at 28 February 2025, bank bills have outperformed domestic fixed interest across time frames ranging from six months, extending out to ten years.
Australia
In Australia, the labour market remained strong as jobs growth again smashed expectations. However, a further rise in workforce participation resulted in a slight increase in the unemployment rate to 4.1%. The RBA cut the cash rate to 4.10% in its February meeting, but Governor Michele Bullock pushed back on market pricing for more rate cuts this year and reiterated that future decisions are data dependent. Bullock said the RBA board cut the cash rate because it had gained confidence that underlying inflation was heading in the right direction, having fallen to 3.2% in the December quarter. However, she framed it as a discrete decision to undo the “cautionary” rate rise delivered in November 2023 rather than the start of a new easing cycle.
Global
On the economic front, US job growth moderated in January. Annual revisions from the government revealed a more moderate labour market last year than previously thought, with the unemployment rate printing at 4%. Separate data showed that US inflation picked up broadly at the start of the year, further diminishing chances the Federal Reserve will cut interest rates anytime soon. The increase in consumer inflation was led by grocery prices, underpinned by a 15% surge in egg prices in the wake of a deadly bird flu outbreak. The stronger-than-expected core inflation report prompted analysts to revise their interest rate expectations for 2025.
Elsewhere, China’s annual producer prices fell by 2.3% in January, surpassing market estimates of a 2.1% decline. It was the 28th straight month of producer deflation amid continued efforts from Beijing to spur demand at the start of the year. Meanwhile, the Reserve Bank of India (RBI) unanimously lowered its policy by 0.25% to 6.25% during its February meeting, marking the first reduction since May 2020 and aligning with market consensus. The RBI is aiming to counter slowing economic growth amid rising global trade uncertainty. Finally, the Bank of England (BOE) cut its benchmark rate by 0.25% to 4.5% in February, marking the third rate cut since the start of its easing cycle in August 2024.
If you want to discuss any of the above information or your personal investment strategy, then book a chat with your financial adviser here.
Following an uncertain beginning to the new year, January reversed course and delivered bumper returns across financial markets. The US Federal Reserve (the Fed) disappointed investors in its December meeting and was keen to avoid a repeat performance at its January meeting. Chairman Jerome Powell achieved this by avoiding using Trump’s name during his speech and announcing that the Fed was not entertaining an increase to its 2% inflation target. Powell also avoided directly engaging with Trump’s statements about his desired interest rate moves and economic policy.
The MSCI ACWI ex-Australia index delivered a total return of 2.6% to unhedged domestic investors in January, as weakness early in the month gave way to rising investor sentiment.
In US dollar terms and excluding dividends, the benchmark US S&P 500 index was up 2.7% in January, and the tech-heavy Nasdaq rose 1.6%. Meanwhile, the Dow Jones Industrial Average gained 4.7% for the month.
In specific stock news, DeepSeek’s extraordinary AI-related announcement raised fears that US companies might be overspending on AI infrastructure and that Nvidia’s premium pricing for GPUs could be challenged. Investors were worried that the demand for Nvidia’s high-performance AI chips might decrease if more cost-effective solutions become readily available. The news triggered a sell-off and Nvidia experienced a US$589 billion reduction in market capitalisation, marking it the largest single-day decline in stock market history.
Elsewhere, returns in MSCI Emerging Market equities were weaker than Developed Market peers as investors contemplated the disruptive impact of the potential US tariffs. Indeed, Trump wasted little time and announced tariffs on Canada, Mexico and China in late January. This resulted in an immediate surge in the US dollar. Subsequent announcements in early February delayed or watered down the new import taxes for Canada and Mexico. China retaliated by announcing tariffs on a suite of US goods.
Closer to home, the ASX 200 rebounded in January, rising 4.6%, including dividends, with similar performances across small cap peers and the listed property sector. The best ASX returns in January were seen among the gold miners and small cap resources space. The opposite end of the spectrum also witnessed positive (albeit much weaker) performances among the small cap industrials and large cap resource names. Across the GICSs sectors, outperformance was most noticeable in Consumer Discretionary and Financials (on the hope of lower interest rates), while Utilities was the only sector that finished in the red, given its more defensive nature.
Returns were broadly positive across defensive assets. Fixed interest enjoyed gains as bond yields ceased the upward shift observed in late 2024. Cash returns continued to tread a steady path as investors awaited the February Reserve Bank meeting. Meanwhile, December quarter CPI data released late in the month increased market enthusiasm that official interest rates would be cut in a matter of weeks.
Iron ore prices moved lower in January. However, gold strengthened as investors speculated about the timing and potential for global supply chain disruption around the implementation of Trump’s proposed policy platform. Finally, Bitcoin posted another strong month.
Australia
Australia’s labour market remained strong in December as jobs growth smashed expectations. A significant rise in workforce participation resulted in a slight increase in the unemployment rate. Meanwhile, a separate report showed that job vacancies rose 4.2% in the three months to November, marking the first increase since May 2022, when the RBA began to hike interest rates. There are now 1.7 jobless people per job vacancy, down from 1.9 in August and compared to about 3.0 before the pandemic.
In other news, quarterly CPI data showed a further moderation in underlying inflation. Trimmed mean inflation – the RBA’s preferred measure – slowed to 0.5% versus the September quarter and to 3.2% annually, just below consensus. Of note is that annual non-discretionary inflation printed below discretionary inflation for the first time in nearly four years.
Global
In the US, the Fed kept the funds rate at 4.25%-4.50%, following 100 basis points of cuts since September, stating it was in no hurry to cut rates further and is looking to see further progress on inflation. “We don’t know what will happen with tariffs, with immigration, with fiscal policy, and with regulatory policy,” said Chairman Powell.
In other news, in December, the US economy added the most jobs since March while the unemployment rate fell slightly, capping a strong year and supporting the case for the Fed’s rate pause. Meanwhile, the core CPI (ex-food and energy) increased 0.2% in December, just below expectations. Due to rounding, this marked the first step down in the core inflation rate in six months. Also, initial estimates for US GDP in the fourth quarter came in weaker than expected, dragged down by reduced investment spending and business inventories.
Finally, the European Central Bank (ECB) lowered its key interest rates by 0.25% in January, reflecting its updated inflation outlook, with price pressures easing in line with projections. While domestic inflation remains elevated due to delayed wage and price adjustments, wage growth is moderating, and corporate profits are absorbing some inflationary effects.
If you want to discuss any of the above information or your personal investment strategy, then book a chat with your financial adviser here.
Market volatility jumped in December as markets took increasing notice of the likely inflationary impacts from the incoming Trump administration’s key policy proposals. The US dollar continued its strong appreciation, and crude oil also staged a rebound, following an extended period of weakness. Meanwhile, the US Federal Reserve (the Fed) lowered the benchmark interest rate for a third consecutive time but lowered the number of cuts it expects in 2025, signalling greater caution over how quickly borrowing costs can be reduced.
The MSCI ACWI ex-Australia index delivered a total return of 2.9% to unhedged domestic investors in December, as a much weaker Australian dollar outweighed losses in global equities (-1.6% in local currency terms). Hedged equity returns were broadly negative during the month, as evidenced by steep losses in global property and infrastructure, where a sharp rise in real yields added to these sectors’ woes.
In the US, the benchmark US S&P 500 index was down 2.5% in December, bringing its 2024 return to 23.3% in US dollar terms and excluding dividends. The Dow Jones Industrial Average lost 5.3% for the month and was up 12.9% in 2024. The Nasdaq Composite rose 0.5% in December and posted a 28.6% gain in 2024—this followed a more than 40% gain in 2023. Also of note, the S&P MidCap 400 decreased 7.3% for the month, bringing its 2024 return to 12.2%. The S&P SmallCap 600 fell 8.1% in December, with a 6.8% rise over the year.
Closer to home on the ASX, Consumer Staples, Utilities, Industrials and Energy all posted positive returns in an overall negative month for the ASX 200. Listed Property, Gold and Materials (which contains resources) had a particularly tough time during the month. Overall, the ASX 200 delivered a negative total return of 3.2% in December but gained 11.4% over 2024. Small cap peers lost 3.1% in December (up 8.4% for the year), while listed property gave back 6.5% in the month, bringing its annual gain to 18.5%. Across 2024, the Info Tech sector was the lead performer, up almost 50%—following similar outcomes from the US mega techs. Returns for Financials increased by 33%, led by the big banks (most notably CBA). At the bottom of the heap were the Energy and Materials sectors, each delivering losses of nearly 14%.
Returns were mixed across defensive assets. Global fixed interest suffered losses as bond yields were driven upward by a combination of rising inflation expectations and firmer real yields on solid economic data. Global credit returns were weaker as corporate default rates crept higher, such as in the office space.
On the domestic front, fixed interest returns were positive in December as the Reserve Bank (RBA) moved towards more dovish rhetoric at its board meeting. Improving CPI data and potential political pressure from the 2025 federal election see markets positioning for a rate cut in early 2025. Domestic credit had a solid December, up 0.7%, taking its 2024 return to 5.4%. Cash (bank bills) posted an annual return just shy of 4.5%, while the composite bond index added 0.5% in December, for a return of 2.9% in 2024.
Elsewhere, the Australian dollar lost more than 9% against the greenback in 2024, following a 5% depreciation during December. Iron ore prices were up slightly in the month, but slumped 27.3% over the year. This mirrored a slight fall in spot gold prices in December and a 27.2% gain in 2024.
The standout performer for the year however, was Bitcoin, up 120% as the crypto space warmed to the election of Donald Trump to his second term as president.
Australia
Closer to home, Australia’s economy expanded at an anaemic 0.3% in the September quarter, below expectations. Year-on-year, the economy expanded 0.8%, compared to the 1.1% consensus forecast. Rapidly rising government spending was the single biggest driver of growth in the September quarter, as fixed asset investment, public servant pay rises and household energy bill subsidies pushed state and federal expenditure to a record share of GDP. Total government spending climbed 8% over the year – far higher than the 5.3% average annual growth rate in the decade before the pandemic. Separately, the November jobs market figures were much better than expected, with the seasonally-adjusted unemployment rate printing at 3.9%.
Global
On the economic front, the Fed cut the funds rate by 0.25% in December, as expected. New quarterly forecasts showed several officials pencilled in fewer rate cuts for 2025 than in their September meeting estimates. The median official now sees the benchmark rate just below 4% by year-end, implying only two further cuts but with upside risks to their inflation projections. At the post-meeting press conference, Fed chair Jerome Powell adopted a hawkish tone, indicating that some officials had tried to predict the inflation impact of Trump’s potential policy moves. Asked why Fed officials are looking to slow their cuts, Powell pointed to how the job market looks to be performing well overall and how recent inflation readings have picked up. Notably, Powell also said that the US Fed does not want to be involved in any government effort to hold large amounts of Bitcoin.
Elsewhere, China’s politburo said that it would embrace a “moderately loose” stance for monetary policy in 2025, its biggest pivot in strategy since the aftermath of the GFC in 2009. It also vowed to have a “more proactive” fiscal policy at its monthly meeting, raising expectations that Beijing will widen the fiscal deficit from 3% at the annual parliamentary session in March. Finally, China’s Premier Li Qiang said China would strengthen countercyclical measures and step up macroeconomic policies.
If you want to discuss any of the above information or your personal investment strategy, then book a chat with your financial adviser here.
November lay witness to a ‘red wave’ Republican sweep of the presidency and the Congress, not to mention winning the popular vote. The swift and decisive victory by the incoming Trump administration removed the substantial uncertainty that had been building in the weeks before the election and paved the way for markets to stage another strong rally. Analysts estimated that the proposed corporate tax cut would boost earnings by up to 5%, which ensured that all major US indices reached new highs as investors paid little regard to rich valuation metrics.
The MSCI ACWI ex-Australia index delivered a total return of 4.3% to domestic investors in November, led by a strong rally in US equities. The benchmark US S&P 500 posted its best month of 2024, returning nearly 6%, including dividends in local currency. Meanwhile, the small-cap Russell 2000 posted its best monthly gain since December 2023, generating a lofty 11% total return. The Nasdaq Composite returned 6.3%, while the Dow Jones Industrial Index returned 7.7%.
However, the ongoing US dollar strength has put another dent in emerging market equities, losing 3% in Australian dollar terms. The declines were broadly based across Asia and Latin America. Over the last ten years, emerging market equities have delivered less than half the return of their developed nation peers. On a brighter note, hedged returns for global property and infrastructure printed with a 4-handle, as real assets benefited from the sharp decline in real yields in late November. Returns in this space have exceeded 20% over the last twelve months, but remain more muted over longer time horizons.
On the domestic front, the ASX 200 finished the month 3.8% higher, reversing its October losses. Despite the risk-on sentiment, domestic small caps struggled to keep pace with their large cap peers, managing to return 1.3% for November.
Despite wild fluctuations in bond yields, fixed most income markets generally performed positively in November. In the US, the strong growth outlook for corporate earnings saw spreads tighten slightly in investment-grade corporate bonds, with more significant gains in the high-yield space. Agency mortgage-backed securities (MBS) showed signs of recovery, while municipal bonds outperformed Treasurys. Elsewhere, Japanese government bonds continued to underperform due to market expectations of further rate hikes and faster balance sheet reductions in 2025. On the domestic front, the fall in treasury yields was sharper than global peers as ongoing weak economic data helped the composite bond index outperform higher-risk credit indices.
The US dollar strengthened further in light of Trump’s ‘America First’ approach to economic and foreign policy. The US Dollar Index (DXY), which tracks the greenback’s value against a basket of major currencies (such as the euro and the yen), gained nearly 2% after rallying by more than 3% in October. The Australian dollar lost just over 1% versus the US dollar in November.
The US dollar prices of gold, copper, iron ore and crude oil all moved lower during the month.
Finally, crypto posted spectacular gains, with Bitcoin surging by 40% to test the psychological $100,000 mark. The cryptocurrency reached new all-time highs during the month, easily surpassing its previous record set in November 2021. Trump’s re-election victory was a major driver, as investors anticipated a more crypto-friendly regulatory environment and potential institutional adoption of the cryptocurrency.
Australia
On the economic front, the Reserve Bank of Australia (RBA) held interest rates steady in November at 4.35%. The RBA’s quarterly monetary policy statement said the economy was still operating “above capacity”. It projects underlying inflation to move below 3% in mid-to late-2025 and to 2.5% in late 2026. The RBA has maintained it wants to see inflation “sustainably“ in its target band before cutting rates. Labour market data printed softer than expected for October, but the trend data remained strong.
Global
The US Federal Reserve (the Fed) continued to normalise monetary policy despite ongoing economic growth and above-target inflation, cutting the Fed Fund’s target rate by 0.25% to 4.50‐4.75%. Chairman Jerome Powell said the US economy was performing remarkably well, with inflation cooling off, and reiterated that interest rate policy remains data dependent. The Fed’s preferred inflation index, the PCE Price Deflator, printed in line with modest consensus expectations, while personal income easily beat the analyst consensus. Also, October headline retail sales came in higher than expected, with significant upward revisions to September’s data.
Elsewhere, annual inflation in the Eurozone accelerated for a second month to 2.3% in November as last year’s sharp declines in energy prices rolled off. Meanwhile, core inflation remained at 2.7%.
In China, annual retail sales jumped 4.8% in October, exceeding consensus of 3.8%. It was the fastest growth in retail turnover since February, boosted by a week-long holiday and a recent shopping festival. Overall, annual inflation in China remains low, and house prices are still falling.
If you want to discuss any of the above information or your personal investment strategy, then book a chat with your financial adviser here.
The comprehensive victory of Donald Trump in the 2024 US presidential election can be expected to have far-reaching implications for global financial markets and economies. While we don’t have a crystal ball, here are ten key ideas that could play out.
In the near term, the stock market may enjoy a rally, particularly if the Fed continues to cut rates and guides for further policy easing. However, we believe that interest rate reductions in 2025 may disappoint investors if Trump is able to enact his policy proposals quickly and effectively, as touted throughout the recent presidential campaign.
In summary, these are just some of the possible implications of a new Trump administration—and undoubtedly there will be many more (including a few curveballs for good measure). While investors need to remain alert to the changing macro and political landscape, this is not a time to panic. History and experience tell us that investors should look through partisan politics and continue to apply a disciplined and unemotional approach to the management of their investments.
As always, if you have any questions, feel free to book a chat with your adviser.
Thanks for reading.
—Pete
October was a mixed bag for investors as a surge in bond yields weighed on sharemarket returns and pushed fixed interest markets back into the red. A rising US dollar accompanied the spike in bond yields as investors began to bet that a second Trump presidency would be the likely outcome of a close election battle. Trump’s high tariff and corporate tax cut proposals were seen as more likely to restoke inflationary pressures and prevent meaningful cuts in official interest rates in 2025.
In local currency terms, the MSCI ACWI ex-Australia index lost 1.1% in October, including dividends. However, a sharp depreciation in the Australian dollar resulted in a healthy 3.7% return to unhedged domestic investors. The S&P 500 fell 1% in October despite what was seen by analysts as solid second quarter company earnings results. This took the S&P 500 YTD return to 19.6%. The Dow Jones Industrial Average declined 1.3% in the month but is up 26.4% in 2024. Meanwhile, the Nasdaq 100 lost 0.9%, taking its YTD return to 18.2%. The weak October for the Nasdaq followed its first positive September since 2019.
Similarly, emerging market equities lost 2.8% in local currency terms, but this translated to a 1.3% gain in Australian dollars—continuing the momentum gained following the China stimulus announcements in the prior month. Indian stocks had a disappointing October as weak corporate results drove investors away from risk assets.
On the domestic front, the ASX 200 finished the month 1.3% lower. Meanwhile, rising yields impacted returns in domestic and global listed property stocks. Notably, domestic listed property has now returned more than 50% over the last twelve months.
In fixed interest, global bond yields were generally higher, despite the US Fed cutting interest rates in September and guiding for further policy easing over the coming months. The US 10-year Treasury note finished the month 56 basis points above its low point for the month at 4.28%. Not to be outdone, the 10-year Commonwealth Government Bond yield surged to 4.51% by month’s end, after trading as low as 3.92% at the beginning of October. In credit markets, European high-yield bonds performed strongly, with investors reacting favourably to the ECB’s interest rate easing cycle.
Elsewhere, global oil markets experienced higher than average levels of volatility in October, ultimately posting a small gain in US dollar terms, as investors weighed the potential for a further escalation in tensions in the Middle East. Gold benefited from the heightened uncertainty emanating from a range of factors, including geopolitical machinations, the US presidential election outcome and the risk of a spike in inflation, to name a few.
The increase in financial market volatility proved beneficial for hedge funds, where global returns jumped 5.2%, though the asset class lags cash over the last twelve months.
Australia
In Australia, the labour market continued to boom, and the unemployment rate remained at 4.1% despite a massive increase in workforce participation. Employment grew by 64,100 in September, and there were 9,200 fewer unemployed people. The main focus during the month was the September quarter CPI figures that showed the annual pace of inflation slowed to 2.8% from 3.8% in the previous quarter due to electricity bill rebates and lower fuel prices. Electricity bills fell 17.3% over the quarter as households received their first quarterly instalment of a $300 federal government energy rebate, as well as generous state-level grants. Yet, core inflation – the RBA’s preferred measure – gained 0.8% quarter-on-quarter, which was above forecasts for a 0.7% increase. Annually, the measure cooled to 3.5%, in line with expectations.
Global
On the economic front, US consumer prices (as measured by the CPI) rose 2.4% in the year to September, a three-year low, though that pace was higher than the 2.3% economists had expected. Overall, inflation was held down by a significant decline in fuel prices, which fell 4.1% month over month. Core inflation rose 3.3% in the year to September, again higher than expected. Notably, food prices have jumped nearly 25% from pre-pandemic levels, well beyond the pace of wage growth. In response to higher food prices, many consumers have shifted their spending from name brands to private labels and are shopping more at discount stores. A similar theme is emerging in Australia.
Meanwhile, in Europe, the ECB lowered its three key interest rates by 0.25% in October, as expected, following similar moves in September and June. However, data released over the following weeks showed that annual inflation accelerated to 2% in October, above expectations and up from 1.7% in September (which was the lowest level since April 2021). Food prices drove the surprise strength in the data. On a more positive note, annual services inflation steadied at 3.9%. Meanwhile, annual core inflation was unchanged at 2.7%, the lowest read since February 2022, but slightly above consensus forecasts. Finally, Eurozone GDP expanded 0.4% in the September quarter, the strongest growth rate in two years and well above expectations. The ECB expects Eurozone GDP to expand 0.8% this year.
If you want to discuss any of the above information or your personal investment strategy, then book a chat with your financial adviser here.
September will be mostly remembered for the US Federal Reserve (the Fed) cutting interest rates by half of a percentage point (-0.5%) to a 4.75-5% range. It was the first reduction since 2020, with the Fed signalling more reductions would follow. The Fed is currently less concerned with inflation and more concerned about a potentially weaker economy after jobs growth began to slow. Fed chair Jerome Powell noted that the policy change was not “mission accomplished” on inflation and cautioned against assuming the 0.5% cut sets a pace that Fed officials would continue.
In local currency terms, the MSCI ACWI ex-Australia index gained 1.9% in September. However, a further rally in the Australian dollar resulted in a weaker 0.1% return to unhedged domestic investors. Similarly, emerging market equities returned 5.6% in local currency terms, but this translated to a 4.4% gain in Australian dollars. Global hedge fund returns were wiped out by the higher domestic currency. Better performances emanated from hedged global infrastructure and hedged global property, which enjoyed returns of 3.1% and 2.0%, respectively.
The S&P 500 rose 2% for the month, taking its YTD return to 20.8%. The Dow Jones increased 1.9% in September and is up 12.3% in 2024. Meanwhile, the Nasdaq Composite gained 2.7%, marking its first positive September since 2019. Emerging market equities rose strongly on the announcement of a significant China stimulus package.
Meanwhile, the ASX 200 set a new record high on the final trading day of the month, driven by the mining sector’s response to China’s stimulus announcement. The ASX 200 finished the month 3.0% higher. Falling bond yields saw another surge in listed property stocks (+6.6%) and small caps (+5.1%). Listed property has now returned 47% over the last twelve months, partly due to AI-related distortions.
The Australian dollar finished September above US$0.69, while iron ore futures spiked more than 10%, the biggest intraday rise since September 2021. This culminated in the mining sector recording its best five-day return since October 2015.
Not to be outdone, China’s CSI 300 index of the largest stocks listed on the Shanghai and Shenzhen exchanges quickly entered a bull market, advancing more than 20% from the month’s low.
During September, most global interest rate markets exhibited a sharp “bull-steepening”. This occurs when interest rates decline across the yield curve, and shorter-term rates decline more than longer-term rates, i.e. the yield curve lowers and “steepens”. The US Federal Reserve’s mid-month 0.5% official interest rate cut was key in driving this performance pattern, but so were rising expectations of further rate cuts in Europe. In contrast, the Reserve Bank of Australia’s continued resistance to rate cuts (given Australia’s inflation dynamics) meant the Australian yield curve changed little over the month.
Global bond yields were generally lower, with the US 10yr Treasury note finishing the month at 3.78%. However, the domestic 10yr Commonwealth Government Bond inched up by less than 1bp to 3.97%.
In terms of performance in the fixed interest asset class, global credit markets surged due to a significant easing in financial conditions. High-yield bonds made solid capital gains after the Fed cut rate cuts, overshadowing the risks to the macro landscape. With the RBA remaining relatively hawkish, most domestic fixed interest segments underperformed global peers—but over the past year, they have still outperformed cash. However, the annualised returns over the last five years remain weak for traditional defensive asset classes as yields are now broadly higher than during that period.
Elsewhere, gold and copper made steady gains, while iron ore futures jumped on the final trading day (not reflected in our table) on the China stimulus announcement. In contrast, crude oil prices weakened despite escalating tensions in the Middle East.
Australia
In Australia, the Reserve Bank’s September board meeting resulted in no change to official interest rates for a seventh consecutive time. In the accompanying statement, the RBA stressed that underlying inflation remains too high and is more indicative of price momentum. There is increasing pressure on the RBA to cut rates after the June quarter GDP figures showed that the economy was close to stalling and that a per capita recession was showing no signs of reversing. Elsewhere, the August unemployment rate was steady at 4.2%, despite the creation of 47.5k jobs (above consensus).
Rest of world
Falling energy prices saw US inflation moderate to 2.5% in the year to August, marking the fifth straight annual drop and the smallest such increase since February 2021. However, core inflation remained sticky over the same period, printing at 3.2%, after shelter costs rose by 0.5% in August. Wages growth eased further in August, while jobs growth was modest at just 142k.
Meanwhile, China’s central bank announced it would lower the required reserve ratio, reduce borrowing costs on more than US$5 trillion of mortgages, and ease deposits for second homes. It later announced permission to refinance mortgages from November 1st, meaning borrowers on fixed-rate mortgages can negotiate cheaper loans. China also eased curbs on property purchases in its so-called tier-one cities, which have restricted non-local buyers to reduce speculation for years. Trading hub Guangzhou became the first major city to remove all restrictions on housing activity, ditching home buyer eligibility screening and no longer restricting the number of homes one person can own. Shanghai and Shenzhen loosened their rules too. Finally, authorities also announced US$100 billion of liquidity support for its beleaguered equity market and plans for a stock stabilisation fund.
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