January was a positive month for equity markets as China’s reopening, coupled with economic resilience in other major economies, generated a positive outlook for global growth. The value of the Australian Dollar increased against all major foreign currencies, decreasing overseas investment returns when measured in Australian dollar terms. International and Australian fixed interest markets posted positive returns as bond yields generally fell.

Inflation in Australia continued to climb throughout December as reported by the latest CPI print released on 25 January by the Australian Bureau of Statistics. The year-on-year CPI increase as at the end of December 2022 was 7.8%, the highest level seen since the early 1990’s. Notable areas of the economy where inflation rose the most were: Housing (10.7%), food and non-alcoholic beverages (9.2%), and recreation and culture (9.0%). In addition, services inflation rose to 5.5% year-on-year in December, the highest it’s been since 2008. The Reserve Bank of Australia Board did not meet in January and the cash rate remained at 3.1% (however the RBA met on the 7th of February and increased cash rates by 0.25% in line with market expectations).

The Chinese Government continued the reversal of their zero-COVID policy in January with the removal of their last set of restrictions. From 8 January international travelers are allowed to enter China without quarantine (however, a negative PCR test within 48 hours of departure is still required). As the Chinese economy restarts from 1,016 days of isolation, some factors affecting the reopening have become apparent. Firstly, reports of upwards of 10 million Chinese citizens per day were contracting the Omicron variant of COVID-19. It’s speculated China reached peak infection around the Lunar New Year on 22 January, traditionally a time for travelling and visiting family, placing a large burden on the public health services. Secondly, the demand for resources to produce consumer goods has increased sharply with the reopening. This creates a demand mismatch and adds to inflationary pressures in the short term. 

The Republican party maintains a single digit majority in the House of Representatives as a result of the 2022 midterm elections. On 7 January, after an historic 15 rounds of voting (the largest number of rounds since before the Civil War), Republican Kevin McCarthy was elected Speaker of the House. One of the first items on the agenda for the Speaker was managing the Debt Limit where Secretary of the Treasury, Janet Yellen, took “extraordinary measures” to keep the limit from being breached in January. The US Debt Limit is designed to contain the US Government’s borrowing which in principle sounds reasonable, however, functionally it only serves as a burden by imposing a restriction on paying bills that Congress has already approved. The polarised nature of politics in the US threatens to push the US Government into default if the Debt Limit isn’t raised or suspended. Default is unlikely as the Debt Limit has been raised over 100 times since its inception in 1917. The US Government’s credit rating has been downgraded on occasion (partly as a result of Debt Limit politics) but the US Government has never intentionally defaulted (although there has been a minor technical default in 1979).

Prime Minister of New Zealand, Jacinda Ardern, announced her resignation on 19 January from the top job, citing she “no longer had enough left in the tank” to fulfill her role. Two major policy achievements under Ardern’s leadership were that New Zealand had one of the most successful COVID-19 lockdown responses of any country and the swift banning of semi-automatic and assault rifles in response to the Christchurch Mosque shooting.

Equities

Major developed foreign equity markets produced positive returns in January. Developed markets (excluding Australia) returned 6.2% on a currency-hedged basis (and 3.0% in Australian dollar terms, reflecting the rise in the value of the Australian dollar). The best performing of the major foreign markets was the European’s stock market (Euro Stoxx 50 Index) returning 8.1%. 

The Australian stock market (S&P/ASX 200 Index) generated a return of 6.2% during January, with 10 out of 11 industry sectors experiencing positive returns. Consumer Discretionary, Materials and Real Estate were the best performing sectors returning 9.8%, 8.9% and 8.1% respectively. Utilities was the sole negative performing sector returning -3.0%.

From a foreign developed market perspective, 9 out of 11 sectors also produced positive returns. Consumer Discretionary and Communication Services were the best performing sectors returning 13.5% and 12.6% respectively, whilst Health Care and Utilities were the worst performing sectors returning -1.2% and -0.7% respectively.

Bonds

The Australian government bond yield curve shifted downwards in January, resulting in Australian fixed interest returns for the month of 2.8% (Bloomberg AusBond Composite Index). The slope of the Australian government bond yield curve flattened in January as the two-year yield decreased by 0.28% and the ten-year yield decreased by 0.50%.

Over January, major developed global government bond yields broadly decreased, resulting in positive returns, with the Bloomberg Barclays Global Aggregate Index (Hedged) returning 2.1%. Notably, the United States Government yields decreased 0.37% over ten-year maturities, the most of the major foreign developed government bond markets. Over the two-year term, United States Government yields also fell the most, by 0.22%, as inflation continues to moderate in that region.

Currencies

The Australian Dollar rose against all major foreign currencies in January. The Australian Dollar increased 3.7% against the United States Dollar and 3.3% against the Japanese Yen. The Australian Dollar finished the month at 0.7055 US Dollars, up 2.4 US cents over the month.

Commodities

Commodity prices continued to be volatile over January. The S&P GSCI Commodities index ended the month down 0.7%, with the index swinging down over 6% and then up over 7% during the month. Notably the price of natural gas futures fell 40.0% and the price of aluminium and copper futures rose 11.2% and 10.9% respectively. The price of WTI oil and Brent oil finished down 1.7% each. Of the precious metals, the price of gold increased 5.7% and the price of silver decreased by 0.9% in December. 

Performance of key markets over relevant time periods to 31 January 2023: 

Asset class	Index	Month* (% change)	FYTD* (% change)	1 year* (% change)
Australian Shares	S&P/ASX 200 Acc. Index	6.2%	16.7%	12.2%
International Shares	MSCI World Ex Aust Unhedged A$	3.0%	7.4%	-7.9%
International Shares	MSCI World Ex Aust Hedged A$	6.2%	8.0%	-8.3%
US Shares	S&P 500 Index	6.3%	8.7%	-8.2%
UK Shares	FTSE 100 Index	4.3%	10.3%	8.0%
Japanese Shares	Nikkei 225 Index	4.7%	4.7%	3.5%
Australian Listed Property	S&P/ASX 200 A-REIT Index	8.1%	12.5%	-5.0%
Australian Fixed Interest	Bloomberg AusBond Composite Index	2.8%	2.5%	-6.3%
Australian Cash	Bloomberg AusBond Bank Bill Index	0.3%	1.4%	1.5%
Currency	AUD/USD	3.6%	2.2%	-0.2%

*Percentage changes in returns are for periods over the month of January (Month), financial year to date 30 June 2022 to 31 January 2023 and the prior 12 months 31 January 2022 to 31 January 2023 (Prior 12m). Past performance is not an indication of future performance.

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