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.

The RBA kept the cash rate on hold in February at 4.35%. The US Federal Reserve didn’t meet in February. Investor focus remains on how many rate cuts will occur throughout 2024 and 2025 and potential opportunities in bonds as markets reflect these changes. As an aside the RBA will no longer meet 11 times a year opting for eight times a year with the meeting held over two days, the next meeting is scheduled for March 18th -19th.

Australian large cap Equities rose by 0.9% driven by the Information Technology (up 19.5%) and Consumer Discretionary (up 9.2%) stocks with the Materials and Energy sectors the laggards falling by 6.0% and 5.0% respectively. Hedged global equities rose by 4.7% whilst unhedged global equities rose by 5.9%, as the Australian dollar weakened by 1% in the month to US$0.6496. US equities were the standout (+5.3% in USD terms) as some of the larger technology companies released earnings and outlook statements that re-ignited investor fervour for those companies exposed to the Artificial Intelligence theme.

The Australian 10-year government bond yield increased by 8bps to 4.15% and the 2-year government bond yield decreased by 1.5bps to 3.74%. The US 10-year government bond yield rose by 22bps to close at 4.25% and the US 2-year government bond yield rose by 43bps to 4.65%.

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Article source: Personal Financial Services Ltd (PFS)

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