31 Jan 2025
Central banks to the rescue
Markets
- Local and global stocks recovered from falls early in the week as central banks came to the rescue whilst US company reporting season got off to a reasonable start.
- There was increased market volatility this week as US tech stocks came under pressure following the release of A.I. technology from Chinese start-up DeepSeek which may have paved the way for cheaper and less energy intensive A.I.
- In local stock news, Zip Co shares plunged to a four-month low after the buy now-pay later company reported a drop in second quarter results out of Australia and NZ and smaller than expected cash earnings.
- Credit Corp shares fell sharply after the debt collector reported slightly softer collection trends than expected in the second half.
- Magellan Financial Group shares fell after the asset manager announced head of investments Gerald Stack and lead portfolio manager on listed infrastructure would step down after 18 years with the company. He will leave the firm in July.
- The Aussie dollar weakened this week with Australian inflation data likely giving the green light for the RBA to cut rates in February.
Economics
- Australian headline inflation rose by 0.2% in the December quarter with the annual rate falling to 2.4%, now comfortably within the RBA’s target band. The trimmed measure increased by 0.5% in the quarter, which saw the annual rate ease to 3.2%. The annual rate of goods inflation was 0.8% in the quarter compared with services inflation at 4.3%.
- The December NAB business survey showed Australian business conditions and confidence remained below long-term averages despite an improvement in the month. Trading and profitability sub-indexes saw notable improvements in December. Conditions were strongest in services whilst overall confidence remains negative.
- Australian fourth quarter trade price data showed export prices rose by more than imports, implying an improvement in the terms of trade which will boost the upcoming economic growth print.
- The US Federal Reserve left their cash rate steady at 4.25-4.50% as expected. Traders initially interpreted changes to the statement as hawkish (less rate cuts) but this was later clarified by the Chair at the press conference. The Committee is in no rush to cut rates and will be data dependent.
- The US economy grew at 2.3% in the fourth quarter, coming in slightly below expectations and below the final third quarter reading of 3.1%. The December quarter result was driven by strong consumer and government spending, and partly offset by a decrease in investment and exports.
- US new home sales rose by 3.6% in December to a 698,000 annualised rate. Pending home sales slid 5.5% in December.
- A key US consumer confidence index slipped in January, coming in below expectations but remaining in positive territory.
- The European central bank eased cash rates by 0.25% to 2.75%, the fifth consecutive rate cut. The tone of the post-meeting communication was dovish (more rate easing).
- The Bank of Japan voted 8-1 to lift the cash rate by 0.25% to 0.50%, in line with expectations.
- Japanese core inflation rose 3% in December versus the same time last year, in line with expectations, marking the highest level since August 2023.
- Chinese manufacturing contracted to the slowest pace since August, coming in well below expectations and below the prior month’s reading. Production fell into contraction after three months of expansion.
- China’s industrial profits fell in 2024 for the third consecutive year, dropping 3.3% after a 2.3% decrease in 2023. Industrial profits surged 11% year on year in December, following a 7.3% slump in the prior month.
- India’s central bank launched measures to inject US$17.4 billion into the financial system amid a cash crunch that has pushed overnight and other short-term lending rates higher. Liquidity drained from the banking system on central bank intervention over the last two years which accelerated from September on foreign investor outflows.
Politics
- In an interview, US President Trump signalled hesitation about imposing tariffs on China, saying he’d rather not have to use them (i.e. viewing tariffs as negotiating leverage). However, 25% tariffs on Canada and Mexico have potentially been slated for this weekend on issues regarding border security.
If you would like to discuss any of the information or meet with us, please feel free to call or email us by clicking here.
General Advice Warning - Any advice included in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on the advice, you should consider whether it’s appropriate to you, in light of your objectives, financial situation or needs.
