Global stock markets started the year with a rally. US stock markets displayed optimism regarding the local economy's outlook under the Trump administration. The S&P 500 recorded a gain of 2.8% in local terms. However, this was slightly offset by the increase in NZD, resulting in an increase of 1.3% in NZD terms. Bond prices remained stable as interest rates only marginally decreased, with 10-year US Treasury rates dropping by 0.03%.
US economic data indicates a strong labour market and consumer optimism, buoyed by the incoming Trump administration. The Federal Reserve held rates steady as expected, confident that inflation is heading toward target and relying on data for future decisions. Markets anticipate a 0.25% rate cut by June.
Australian economic data showed a mixed picture: a strong labour market but slower-than-expected inflation. This is positive news for the Reserve Bank of Australia. Markets anticipate the first rate cut next month.
New Zealand's CPI inflation remained at 2.2% in the fourth quarter, not dropping as expected. However, domestic-driven inflation fell more than anticipated, likely reassuring the Reserve Bank of New Zealand (RBNZ) that the economy needs further rate cuts. Interest rate markets predict another 0.5% cut in February.
New Zealand's interest rates experienced an increase due to international influences with 2-year and 5-year interest rates moving +0.1% higher.
The USD appreciated leading up to Trump's inauguration. However, a perception of a more pragmatic approach to tariffs resulted in the USD giving back its gains. Consequently, the NZD ended the month +0.72% higher.
Financial markets are carefully observing the policies being implemented by the new administration in the United States. Equity markets are also particularly attentive to corporate earnings and developments within the AI sector. Domestically, upcoming data points include employment statistics and the RBNZ's updated forecasts, which will be released during their February Monetary Policy Statement.