Inflation is heading in the right direction. Yesterday’s annual trimmed mean inflation rate came in at 3.2%, down from 3.6% in the September 2024 quarter. The trimmed mean excludes irregular or temporary price moves and is the more relied-upon measure.
Will the RBA Board begin an easing cycle and cut next month? I’m still thinking the trimmed mean isn’t in the target band yet, employment is strong, and the Board won’t want to be seen to impact an election. However, the 3.2% rate is a significant step down and a cut could be justified.
In the US, the Fed kept policy rates unchanged at 4.25-4.5% at its January FOMC meeting after 100 basis point cuts in 2024.
There’s plenty of speculation as to what will happen to fixed income markets in 2025.
Michael Goosay from Principal Asset Management suggests fixed income investors need to assess two major factors when assessing performance in the year ahead – starting yield and credit spread dynamics. The article has this terrific chart showing average yields over the last 10 years and current yields.
While Robert Tipp, from PGIM Fixed Income thinks poor performance last quarter has set the market up for a bull run in 2025.
The new Queensland state government came out with its budget this week, and the Treasurer stated he thought the state’s credit rating was at risk of being downgraded. Queensland state debt is tipped to exceed $210 billion, a blow out from the $172 billion forecast by the previous government.
Queensland isn’t the only government ramping up debt, as John Sidawi and Ihab Salib from Federated Hermes explain. While many countries have started to cut interest rates, they are also spending big and increasing debt. They believe spending has the potential to reignite inflation, forcing central banks to slow easing cycles. This is a little more technical but a very good article and well worth a read.
ASIC is investigating private markets and recently flagged it may need to tweak its approach.
Enjoy!
