The bulls are back

Strong economic data from the world’s largest economy has dispelled recessionary fears, while falling rates of inflation have investors prepped for a year of rate cuts, even if many central bankers have pushed back on the notion of them being imminent. The US earnings season has also been very strong, with the technology sector (and any mention of AI) continuing to capture much attention.

The performance of the New Zealand and Australian markets was also positive in January, even if a little more sedate than markets in the US. The NZX50 rose 0.9% last month, while the ASX200 gained 1.2%, hitting a record high in the process. Better expected inflation prints on both sides of the Tasman, along with some softness in the economy, is pushing the case for the RBNZ and RBA to cut rates in the coming months, despite ongoing hawkish comments from officials. 

The question of rate cuts this year does appear to be very much a question of “when” rather than “if.” This was a scenario being factored in by markets in the final quarter of last year, and encouragement is now being taken from any data (macro or corporate) which indicates that inflation is falling whilst also suggesting the world economy will avert a material downturn.

Strength in the US economy (we have had strong consumer confidence, retail sales, and house price data in recent weeks) has meanwhile been further underlined by the recent Non-farm Payrolls report which showed that job creation in the world’s largest economy Is roaring ahead. The US added 353,000 jobs in January which trounced estimates for around 185,000. The unemployment rate held at 3.7%, against forecasts for 3.8%. Job growth was widespread and prior months’ jobs gains were upwardly revised. Wage growth was strong (double estimates) at 0.6% for the month, but also came as Americans worked slightly less hours.