EOFY market update: Global and Australian investment insights

As we look back on FY24 and ahead into the new financial year, we can see that the global and Australian financial markets have shown remarkable resilience and recovery. To assist with your financial and investment strategies, we’re sharing this market update to highlight key trends and events that may have an impact on the investment landscape

Global market insights

Financial markets recovered throughout FY24, after hitting lows in October 2023 on worries over rising interest rates causing a hard landing, China’s property downturn and destabilisation in the middle east. But by late 2023, inflation had started to ease, and the oil price surprisingly retreated. US bond yields fell from 5.0% to 4.0%, which was the catalyst for growth assets recovering. China remained stable, despite continued problems in its property sector, and commodities have generally remained resilient.

By early 2024, discussions of a soft landing in the US became more common, and enthusiasm for technology and AI stocks returned. As the year progressed, inflation in the G7 countries had receded enough for Canada and Europe to begin reducing their cash rates. The US is expected to follow suit in September 2024.

Global shares finished the year with strong gains, with the US, Japan, and India leading returns. Bond returns have become more mixed as bond yields have started to creep higher again. Rising bond yields lead to lower bond prices, causing bond fund returns to potentially turn negative.

As we move into FY25, the direction of bond yields is likely to become a key issue for financial markets, as bond yields influence equity market valuations and the cost of debt. The crucial question is whether yields will fall as inflation eases and the Fed cuts the cash rate, or if they will rise due to concerns over the implications of a possible Trump presidency, which is viewed as potentially negative for inflation and the trajectory of the US budget deficit.

Australian financial landscape

The Australian market was stuck in a narrow trading range and largely went sideways for the two-year period up to October 2023. It managed to climb out of this range with the global market rally that began in late 2023. However, market gains have generally been subdued relative to global markets, likely due to modest earnings growth across many sectors, particularly in the heavyweight Banking and Resource sectors.

Economic growth is currently low but expected to improve in FY25, driven by easing interest rates and income tax cuts. Unfortunately for mortgage holders and businesses needing financing, monthly inflation figures have been trending up towards 4.0%, increasing the chances that the RBA may need to raise the cash rate further from the current rate of 4.35%. The formal quarterly inflation figures, due in late July 2024, will significantly influence whether the RBA must increase rates at its August meeting. If the RBA does raise interest rates while the US Fed is easing rates, this should be the catalyst for the AUDUSD to rally. We note the AUDUSD has been creeping higher and is $0.67 at the time of writing.

Commodity prices have been mixed, with gold, copper, and aluminium strong, while iron ore, coal, and LNG have been subdued, and lithium and rare earths weak. Resource stocks have generally underperformed over the past year.

Outlook

Equity markets have rallied strongly on enthusiasm for the soft-landing scenario and technology stocks. Interest rates are starting to ease in G7 countries, but Australia seems to have an inflation issue and may need to increase rates. This unusual situation complicates the outlook and a rising cash rate and a rising currency could create headwinds for the local market.

Generally, the US lead is the most crucial, and it seems that the US Fed is on track to ease the cash rate by September 2024. However, it is unclear whether bond yields will also ease, with this uncertainty compounded by implications for inflation and deficits if Donald Trump wins a second term and implements his policies.

Considering the above issues and the record level of the US market, we have moved to a more cautious stance (from bullish) as we await key inflation data in Australia and monitor the direction of bond yields leading up to the US election in November 2024.

For those looking into tax planning strategies or seeking a tax accounting service, it’s essential to stay informed about these economic trends. Strategic advice from the experts at LDB can help navigate these complexities so you can buffer wealth management strategies against uncertainty and optimise returns in any market. Whether you’re interested in tax structuring, tax reduction, or advice on self managed superannuation funds and investments, LDB can help.

Key upcoming economic events

• US 2Q24 reporting season – July 2024
• Australian inflation (June quarter) – 31 July 2024
• US Federal Reserve meeting – 31 July 2024
• RBA meeting – 6 August 2024
• Australian FY24 reporting season – August 2024
• US Presidential election – 5 November 2024

Advice to help you thrive in any market

Whether you’re seeking a reliable wealth management partner, or a tax consultancy firm to help you optimise your returns as you build for the future, LDB provides diverse financial solutions including tax planning and accounting, wealth management, business advisory and lending. Contact LDB on (03) 9875 2900 and let’s help plan your future.