Market Update – February 2025
TWD January 2025 Commentary
Markets had a strong start to the year, with the S&P/ASX 200 rising 4.57% in January, reaching a record high of 8,532.3 points. The IT (+4.2%) and Financials (+6.1%) sectors led gains, while Utilities (-2.4%) lagged. Several companies released earnings updates during the month, including investment platform provider Hub24, which reported strong net inflows and increased market share, which saw it rally 16% in response. The broader market remained buoyant, with investor optimism supported by declining inflation expectations and the potential for rate cuts later in the year.
December’s inflation data signalled continued disinflation, with the RBA Trimmed Mean CPI at 3.2% YoY, below market expectations. Inflationary pressures in housing and insurance, which had been persistent throughout 2024, moderated significantly. The softer inflation print has increased the likelihood of monetary easing, with markets now fully pricing in two 25bps rate cuts by the end of 2025. In response, Australian fixed income markets performed well, with bond yields declining and investors increasing exposure to duration-sensitive assets. Our long Australian fixed income position, initiated in mid-2024, continues to benefit from these trends.
In global markets, the S&P 500 climbed 3.03% for the month, supported by strong US economic data and investor confidence in the Federal Reserve’s policy stance. AI-related equities experienced significant volatility, particularly Nvidia, which fell 16.4% in a single day after a Chinese start-up, DeepSeek, unveiled an advanced AI model that reportedly rivals US technology at a fraction of the cost. This development sparked concerns over the sustainability of Nvidia’s dominance in AI-related infrastructure.
Meanwhile, US economic data remained robust. Payrolls data released mid-month showed job growth exceeding expectations, with 256,000 jobs added in December. The Federal Reserve maintained the federal funds rate at 4.25%-4.50%, citing balanced risks to inflation and unemployment. However, the global trade landscape became increasingly uncertain after the US administration announced sweeping tariff measures against Canada, Mexico, and China. The new tariffs, aimed at curbing imports and boosting domestic production, drove the US dollar higher against most global currencies. The long-term economic impact remains uncertain, with potential repercussions for global supply chains and inflation trends.
Commodity markets saw significant moves, with gold prices surging 7.32% for the month, amid geopolitical uncertainties and expectations of lower interest rates. Iron ore prices were volatile, initially dipping below $100 per tonne before recovering to $106 per tonne following the announcement of US tariffs on Chinese imports. Brent crude oil prices remained subdued, reflecting concerns over slowing global demand and continued OPEC production strategies.
Looking ahead, key economic releases, including US payroll and CPI data, will shape market expectations for central bank policy. While inflation appears contained, risks remain from potential tariff impacts, fiscal stimulus measures, and shifts in global monetary policy. The Australian economy continues to show signs of moderation, reinforcing the case for RBA rate cuts in 2025. Our positioning remains focused on opportunities arising from monetary easing and global economic shifts.
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