The Australian share market closed January at a record high level, with the All-Ordinaries index gaining by 1.1% for the month and closing at 7,912.80 points. The Australian dollar weakened by 3.8% in January with 1 Australian Dollar buying 65.70 United States cents.
Global share market returns were mixed in January, with the United States Dow Jones Index gaining by 1.1%, the London FTSE falling by 1.3%, the Japan Nikkei 225 gaining by 8.4%, and the Hong Kong Hang Seng Index falling by 9.2% for the month.
Economic data late in the month showed that the Australian inflation rate had fallen to 4.1% on an annualised basis for the year to December 2023 as shown in the chart below.
The inflation rate was below expectations, and immediately following the data release, the Australian Dollar fell in value (with the market becoming increasingly confident that the next Reserve Bank of Australia interest rate move will be a cut later in 2024).
If inflation continues to trend down this year (and provided that there are no more shock geopolitical events), I expect investment markets to react favourably.
In the United States, with the annual inflation rate now under 3.5%, the Federal Reserve Chairman confirmed overnight that interest rates have peaked, and he sees rate cuts ahead if inflation continues to trend down.
While some were hoping for a rate cut in the United States as soon as March, the overnight comments ought to be taken as a positive shift in rhetoric in my view.
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This article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation, and investment objectives.