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Australian economy

Australians enjoyed a break from RBA meetings in January, but economic data continued to point towards future interest rate increases. Quarterly inflation was reported at still around 2% (equating to just under 8% year-on-year) and the labour market has remained very tight. Even so, wages growth has been subdued, highlighting a real fall in incomes. Interestingly, the Australian yield curve has just started to invert, with the 3-5 year end of the spectrum showing yields below the current cash rate¹. 

International economy

An advanced reading for US GDP shows that the US economy is moving along at a steady pace. This is backed by unemployment at record low levels at a steadying level of wages growth. Inflation remains high, though easing, in the US whilst the experience in Europe seems to be a few months behind. Despite both inflation and unemployment being higher than normal in Europe, business confidence has started to rebound on the back of a warmer winter¹. 

Investment Markets

2023 got off to a strong start as markets rebounded from a dismal 2022. European stocks rallied the most, up almost 10% for the month while Aussies shares jumped about 6%. This was the complete opposite to a year ago where markets slumped on the back of a strong 2021². 

Outlook

With inflation still well above comfort levels throughout the world, it is likely that central bankers will need to maintain rate hikes for a bit longer still. Yield curves, however, are pointing to drops in cash rates later in the year and into 2024, though central bankers may be less willing to cut so soon.

S&P/ASX200 - 12 months to 31 January 2023