Global Market Outlook
Global Markets at mid-year 2024 are priced for no-recession soft landing in the U.S., but mixed data signals are delaying central bank rate cuts. This creates some risk of harder landing in late 2024/early 2025. There is still no clear answer to this year’s key question: is the U.S. economy headed toward a no, soft or hard landing?
We see plausible reasons why any of these scenarios are possible.
Just as last year’s investor pessimism was overdone, we worry this year’s optimism could eventually prove to be excessive.
Credit: Andrew Pease, Chief Investment Strategist, Russell Investments.
Domestic Market Outlook – Australia and New Zealand
Australia remains on the narrow path of avoiding recession. The consumer is under stress from the increases in the Reserve Bank of Australia’s (RBA) cash rate and variable rate mortgage interest rates. Consumer spending has slowed materially. Tax cuts will start on July 1. It is unlikely that all the increase in disposable income will be spent, but it may provide some support, particularly to lower-income consumers. Improvement in Chinese economic activity will also be supportive.
The inflation pulse in Australia lags the rest of the world by about six months (due to a later reopening from the pandemic lockdowns), and so the RBA will likely lag major central banks to reduce rates. Our current base case is for a cut in November, but there is growing risk that the RBA may stay on hold until early 2025.
New Zealand’s economy has contracted in three of the last four quarters, illustrating the pressures that the economy is facing following the aggressive action from the Reserve Bank of New Zealand (RBNZ). The outlook remains challenging, with credit growth still soft and a large current account deficit. Despite the unemployment rate having risen more than 1% from its low, wage pressure has not abated yet. This leaves the RBNZ in an uncomfortable position. We expect that the RBNZ will commence cutting rates after the U.S. Federal Reserve.
The team at AFM would like to wish you a Happy and Prosperous New Year as you continue to steward resources entrusted to you.
As 2024 comes to a close, I want to take a moment to acknowledge the incredible work of investors, donors, and organisations in the community and not-for-profit space. Your dedication to stewarding capital for meaningful programs transforms lives and strengthens communities.
As we step into 2025, may your efforts continue to create impact, inspire change, and build a future filled with hope and opportunity for those who need it most. Here’s to another year of collaboration, innovation, and purpose-driven investment!
Wishing you all success and sustainability in your missions for the year ahead.
AFM Team
1300 059 305
www.anglicanfundsmanagement.com.au
Global Market Outlook
Global Markets at mid-year 2024 are priced for no-recession soft landing in the U.S., but mixed data signals are delaying central bank rate cuts. This creates some risk of harder landing in late 2024/early 2025. There is still no clear answer to this year’s key question: is the U.S. economy headed toward a no, soft or hard landing?
We see plausible reasons why any of these scenarios are possible.
Just as last year’s investor pessimism was overdone, we worry this year’s optimism could eventually prove to be excessive.
Credit: Andrew Pease, Chief Investment Strategist, Russell Investments.
RBA Rate – Announcement December 2024 meeting
The Reserve Bank of Australia kept the cash rate unchanged at 4.35% at the December meeting. The board have become a bit more confident that inflation is on a path towards the target, following a round of softer economic data. Market pricing has moved a bit closer, with a full cut now more than fully priced by April 2025. Risks around this timing are now considered to be more balanced. the key watch points that may will be factored in continue to be monitoring the if any changes in the labour markets, whilst consumer spending and inflation will be the key watchpoints for the months ahead.
Domestic Market Outlook – Australia and New Zealand
Australia remains on the narrow path of avoiding recession. The consumer is under stress from the increases in the Reserve Bank of Australia’s (RBA) cash rate and variable rate mortgage interest rates. Consumer spending has slowed materially. Tax cuts will start on July 1. It is unlikely that all the increase in disposable income will be spent, but it may provide some support, particularly to lower-income consumers. Improvement in Chinese economic activity will also be supportive.
The inflation pulse in Australia lags the rest of the world by about six months (due to a later reopening from the pandemic lockdowns), and so the RBA will likely lag major central banks to reduce rates. Our current base case is for a cut in November, but there is growing risk that the RBA may stay on hold until early 2025.
New Zealand’s economy has contracted in three of the last four quarters, illustrating the pressures that the economy is facing following the aggressive action from the Reserve Bank of New Zealand (RBNZ). The outlook remains challenging, with credit growth still soft and a large current account deficit. Despite the unemployment rate having risen more than 1% from its low, wage pressure has not abated yet. This leaves the RBNZ in an uncomfortable position. We expect that the RBNZ will commence cutting rates after the U.S. Federal Reserve.