Equity markets have risen to all-time highs in a number of advanced economies, including Australia and the United States (US). These advances have been driven by a strengthening belief that economies can avoid a recession and achieve a “soft landing”, combined with optimism around Artificial Intelligence. The value of the Australian Dollar fell in February against most major foreign currencies, increasing overseas investment returns when measured in Australian dollar terms. Australian and international fixed interest markets posted negative returns for the month of February.

The Board of the Reserve Bank of Australia (RBA) announced on 6 February 2024 it was leaving the Cash Rate Target unchanged at 4.35%. The RBA media release stated “while there are encouraging signs, the economic outlook is uncertain and the Board remains highly attentive to inflation risks. The central forecasts are for inflation to return to the target range of 2–3 per cent in 2025, and to the midpoint in 2026. Services price inflation is expected to decline gradually as demand moderates and growth in labour and non-labour costs eases. Employment is expected to continue to grow moderately and the unemployment rate and the broader under utilisation rate are expected to increase a bit further.”

Global inflation continued to remain above central banks’ targets as reported numbers for January were published in February. In January, the headline Consumer Price Index (CPI) rose 3.4% year on year for Australia, 4.2% year on year in the United Kingdom, 3.1% year on year in the European Union and 3.1% for the US. The Australian Bureau of Statistic reported that the most significant price rises in Australia were Housing (+4.6%); Food and Non-alcoholic beverages (+4.4%); Alcohol and Tobacco (+6.7%); and Insurance and Financial services (+8.2%). In the US, components of the CPI basket which increased the most in January were Shelter, Motor Vehicle Insurance and Medical Care, with Shelter contributing to over two thirds of the monthly core inflation with an increase of 0.6%. 

At the end of February, the United States S&P 500 was 6.2% higher than its previous all-time high set back in January 2022. A big driver of the recent all-time high was computer chip maker Nvidia which released earnings and data-center sales results that were even stronger than expected, and as a result Nvidia’s stock price rose 16.4% in one day (22 February). This rise added US$272bn to its market capitalisation, a record for US stocks and propelling Nvidia to become the third most valuable company in the world.

Major developed foreign equity markets rose in February with developed markets (excluding Australia) returning 4.7% on a local currency basis (and 5.9% unhedged in Australian dollar terms, reflecting a fall in the value of the Australian dollar). The best performing major foreign equity markets were the Chinese stock market (Shanghai Composite) and the Japanese stock market (Nikkei 225) returning 8.1% and 8.0% (in local currency terms) respectively in February. 

The Australian stock market (S&P/ASX 200 Index) returned 0.8% for the month, with five industry sectors experiencing positive returns, five industry sectors experiencing negative returns and one broadly neutral. Information Technology and Consumer Discretionary were the top performing sectors with returns of 19.5% and 8.2% respectively. The largest detractor was Energy, which returned -6.8%.

From a foreign developed market perspective, 10 out of 11 sectors produced positive returns for the month. The standout performers were Consumer Discretionary, Industrials and Information Technology returning 8.0%, 6.3% and 6.3% respectively. The worst performing sector was Utilities which fell 0.8%

The Australian government bond yield curve was broadly flat in February, with 2-year yields rising by 0.12% and 10-year yields rising by 0.12% to finish the month at 3.80% and 4.14% respectively. Australian fixed interest returns for February were -0.3% (Bloomberg AusBond Composite Index).

Over February, major developed global government bond yields broadly rose, particularly over longer terms, leading to a decrease in the Bloomberg Global Aggregate Index (Hedged) of -0.8%. Notably the 2-year Euro government bond rose the most of the developed government yields rising 0.47% from 2.43% to 2.9%.

The Australian Dollar broadly fell against other major foreign currencies. The Australian Dollar decreased by 1.1% against the US Dollar and 1.0% against the Euro, whilst it rose 1.6% against the Swiss Franc and 1.0% against the Japanese Yen. The Australian Dollar finished the month at 0.6497 US Dollars.

Commodity prices were somewhat volatile over the month of February, and the S&P GSCI Commodities Index ended the month up 0.5%. The price of WTI oil and Brent oil rose 3.2% and 2.3% respectively. Notably Natural Gas and Iron Ore fell 11.4% and 9.4% respectively over the month. Of the precious metals, the price of gold rose 0.2 % whilst the price of silver fell 1.2% in February. 

Performance of key markets over relevant time periods to 29 February 2024:

*Percentage changes in returns are for periods over the month of February (Month), financial year to 29 February 2024 (FYTD) and the prior 12 months, to 29 February 2024 (Prior 12m). Past performance is not a reliable indicator of future performance.