Market update: Global economic shifts and investment opportunities

Global market insights

Global shares have recorded a significant rise over the past quarter, with a 14.1% increase fueled by expectations that both inflation and interest rates might ease in 2024.

Precious commodities such as gold and oil have rallied, seemingly in response to increased geopolitical risks in regions like Eastern Europe and the Middle East, as well as the forthcoming US election in November 2024. Lowering interest rates have also contributed to the upward trend in commodities, highlighted by a recent surge in industrial metals including copper, nickel, aluminium, and lithium.

Conversely, bulk commodities such as iron ore and coal have seen a decline from their previous high levels.

The prevalent risk remains that inflation might not subside as anticipated. Current US data suggests more robust growth and inflation than expected. However, the US Federal Reserve remains optimistic, projecting a continued downward trend in inflation.

Market adjustments have delayed expected US rate cuts from May to June, likely extending further into the year. This has bolstered the USD, keeping the Australian dollar (AUD) at a relatively weaker stance, hovering around US$0.65.

Australian financial landscape

Australian shares saw a more modest increase of 5.3% over the last quarter, though listed property significantly outperformed with a 16.2% gain. A key development was the approval of the stage 3 income tax cuts starting 1 July 2024, which should enhance disposable incomes but may also postpone the anticipated cuts in interest rates.

With a current inflation rate of 4.1%, Australia’s inflation is higher than the US’s 3.2%. However, it is more likely to fall as the relatively high prints from a year ago drop off, and the March quarter inflation figures due in late April should show inflation retreating to around 3.5%.

It is unlikely that the Reserve Bank of Australia (RBA) will reduce interest rates before August/September, with potential delays extending into late 2024 or early 2025. It is anticipated that the Fed will reduce rates before the RBA, which might trigger an uplift in the AUD/USD exchange rate later this year.

Outlook

While markets rally on the back of expected rate cuts and signs of economic recovery, these anticipations paradoxically delay the rate cuts, possibly leading to short-term corrections in equity markets. The creeping prices of commodities could also negatively impact the inflation outlook.

Nonetheless, the existing interest rates are deemed sufficient to bring down inflation to the target levels, although this adjustment might take longer than the markets have predicted.

Moving forward into FY25, the outlook remains positive for Australian investors. Overall, we still expect interest rates to ease in FY25 and we remain bullish on the outlook but note that our focus on quality and value will remain important (as always).

Key Upcoming Economic Events:

• Aust. March quarter CPI – 24 April 2024 
• Fed meeting – 30 April/1 May 2024
• RBA meeting – 6/7 May 2024
• Aust. Federal Budget – 14 May 2024

Do your investments align with your wealth accumulation strategy?

For tailored advice and comprehensive wealth management, including on Australian self-managed super fund (SMSF) investment options, contact LDB today. Working with an experienced SMSF accountant can help manage complexities associated with SMSF investments and audits. Additionally, SMSF loans offer unique opportunities for portfolio diversification. Our wealth management and superannuation experts are prepared to provide you with strategic guidance for growing your specific portfolio as well as access to a broad array of financial services and advice to help you achieve your long term financial goals.