– January provided a mixed bag of results for financial markets, with strong economic data in Europe and the US, in addition to heightened geopolitical risks and higher commodity prices.
– In Australia, price gains in key commodities boosted our exports and pushed the Australian Dollar higher. Economic data was mixed with falling unemployment rates and no increase to inflation yet consumer sentiment and spending remain stagnant. Australian Shares were mostly flat, falling -0.8% over the month. The resource sector continued to perform with rising iron ore and base metal prices, yet this was offset by key detractors of Listed Property (-4.7%) and Consumer Discretionary (-4.3%).
– In the US, positive economic data supported US shares, which made record highs in January. Jobs and wages rose, while business and consumer sentiment and spending also showed strong gains. The positive economic data coupled with anticipated higher corporate profits and Trump’s expected stimulus program pushed shares higher (+1.79%) to record highs for the S&P500.
– In Europe, heightened geopolitical risks continued to decrease investor sentiment and confidence, moving shares slightly lower through January. Concerns over Trump’s potential effect on global trade, in addition to forthcoming elections in the Netherlands, France and Germany, which have seen a rise in right-wing populist parties, created enough uncertainty to weigh on investors, pushing shares down -0.36%.
– Following on from December, Australian Bonds continued to stabilise in January, with a minor drop of 3 basis points. This was on the back of mixed economic data and mild inflation. Globally, US Bonds went sideways as the market awaits further interest cuts from the US Federal Reserve and policy details from the Trump administration. In Europe, bond yields rose on the back on stronger economic data and higher inflation rates.
– In the commodity markets, base metals all rose on the back of increased industrial demand from China and the US, in addition to the highly speculated increased infrastructure spending from the Trump administration. Oil narrowly fell, amid concerns of increasing US production output against cutbacks from other major oil producers due to the OPEC agreement. Gold moved higher due to a falling US dollar, increased demand ahead of the Lunar New Year, and perceived ‘safe haven’ bets amid rising geopolitical uncertainty.
– The rising commodity prices became the catalyst for a surging Australian Dollar, which moved 4.6% higher against the US Dollar through January.
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