Market Update - March quarter 2024
Australia's economy sees a mixed bag: inflation on the decline, equities soaring, and gold and oil rallying amid Middle East tensions. Real estate prices surge while wage growth slows, hinting at a soft landing instead of recession. Speculation also continues to mount as to whether policymakers may look to cut interest rates.
Read below to find out more on the current status of the Australian and global economies.
Global equities gain momentum
The March 2024 quarter witnessed a surge in global equities, with bullish sentiment felt in Australia, as the ASX 200 reached an historic milestone, closing the quarter at an all-time high of 7,896 points.
Oil prices rally amid supply concerns
Global oil prices rallied in March 2024, driven by lower production from OPEC+ nations and escalating geopolitical tensions in key regions. Brent Crude oil prices surged during the month, reaching a high of $127 AUD per barrel.
Gold surges to all-time high
Investor appetite for safe-haven assets surged in March, driving gold prices to unprecedented levels. The precious metal reached an all-time high of $2,229 per ounce, gaining over 9% during March alone. This flight to safety reflected continued concerns over inflation and geopolitical uncertainties.
Real estate performance shows resilience
Despite economic uncertainties, Australia’s real estate market has exhibited remarkable resilience. CoreLogic data indicates a continuation of last year’s growth performance, with national dwelling values rising by a further 1.6% during the March 2024 quarter. Auction rates are also consistently above 70% across the combined capital cities (Sydney, Melbourne, Brisbane, Perth and Adelaide and Canberra), showing that the market is buoyant.
Wages growth plateaus, job market eases
While Australia experienced robust wages growth in recent years, there are indications that the momentum may be tapering off. Data from the Australian Bureau of Statistics (ABS) shows seasonally adjusted wages price index growth of 0.9% in the December quarter of 2023, down from 1.3% in the previous quarter. The RBA confirmed in its February statement that firms are expecting wages growth to ease more broadly over the year ahead, with the unemployment rate also expected to rise as inflation heads back towards the 2-3% target range.
Decline in inflation
Amidst the broader economic landscape, there has been a noticeable decline in inflation. Headline inflation has reduced at a faster pace than forecast, falling from a peak of 7.8% at the end of 2022 to 4.1% annually. Whilst the latest quarterly inflation reading of 0.6% is the lowest since March 2020, services inflation, which includes rent, financial services and utilities remains stubbornly high.
Soft landing narrative holds firm
Overall demand growth is expected to remain subdued in the coming year as earlier interest rate increases continue to weigh on consumption. Whilst recent GDP growth figures for the fourth quarter of 2023 showed a softer expansion of 0.2%, the current trajectory of a reduction in inflation seems to indicate Australia is steering towards a soft landing.
Mixed sentiment on interest rate outlook
The Reserve Bank of Australia (RBA) maintained a cautious stance during its second meeting of the year, leaving the cash rate unchanged at 4.35%. This decision reflects a nuanced approach to monetary policy amid evolving economic conditions. Recent inflationary pressures mean policymakers face the delicate task of managing interest rates to stimulate growth while containing price pressures.
Market sentiment regarding interest rate cuts remains mixed, with the futures market pricing in a 45% chance of a 25-basis point cut in August and fully pricing in a cut by November 2024.
Finance and lending in Australia
The major banks in Australia have different views on the exact timing of when interest rate cuts are likely to eventuate, however analysts from the 4 major banks are of the consensus that a reduction in the Reserve bank rate towards the end of the year is likely. With a further 450,000 households rolling out of fixed rate loans by the end of 2024, the property market remaining buoyant in anticipation of potential interest rate reductions, and lenders working out where to position themselves in the market as a function of the economy moving into the next phase of the interest rate cycle – there is no better time to assess your position in relation to your current or future financing arrangements.
For more information on how the market affects your current financing position, contact us to discuss your situation further.
