14 November 2024
After a solid start to the financial year, many global markets experienced some volatility in August, largely around weaker US economic data. However, despite some modest declines in August and early September, key global share markets have since returned to around all-time highs. We’ve seen a continued trend of generally strong corporate earnings and an improved economic sentiment and outlook. A gradual shift in interest rate policy by many central banks, coupled with continued geopolitical developments, have been closely analysed by the investment team to support positioning across the portfolio.
As inflation continues to fall, many central banks have begun to cut interest rates. The US Federal Reserve cut interest rates again in November by 0.25%. This follows their decision to cut interest rates by 0.50% in September, which was their first rate cut in four years. The Reserve Bank of Australia has acknowledged that inflation is expected to continue easing in advanced economies. However, underlying inflation in Australia still remains above the RBA’s target range, so they have not yet followed other central banks in cutting interest rates.
As central banks cut rates, they face the challenge of reflation – where if they cut rates too quickly, inflation could rise again. This could lead to a situation where central banks may need to maintain higher rates for longer. So, we’ll continue to monitor the activity of central banks closely.
AustralianSuper's investment team performs research on the macroeconomic and investment market implications of geopolitical events, such as political elections. Elections often have the potential to create market uncertainty and volatility in the short term. When analysing these types of events and their impact on investments in the portfolio, we are specifically focused on the drivers of long-term returns. These include factors like the profitability and earnings growth of assets, which directly support the growth of member balances over time.
The performance of US equities – which have been notably strong over the past two years – has been further bolstered in recent days by the greater certainty provided by the definitive US presidential election result. It is difficult to predict what the longer-term impact and volatility will look like over the next few years, but we will be closely following the potential impacts that could come from changes to corporate tax rates, tariffs, fiscal spending and foreign trade.
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