CFS Market Update: April 2024

• The US Federal Reserve (the Fed) kept rates on hold as inflation ticked up.
• The Reserve Bank of Australia (RBA) left rates unchanged at 4.35% at its 6/7 May meeting.
• Jonathan Armitage, CFS Chief Investment Officer, commented on ongoing volatility and how CFS prepares for times like this.

The Fed left the primary US interest rate unchanged in the current 5.25 per cent to 5.50 per cent range, where it has been since July. This was widely expected although persistent inflation now means it is less likely that the US central bank will begin easing rates in September.

A major theme in April was the US market moving away from the previous month's high confidence in a three-cut 2024 and shifting to a view that the Fed may only ease by 25 basis points later in the year. Borrowers in other major global markets may also have to wait longer to see interest rates come down, as policymakers look for stronger signs that inflation pressures are easing sufficiently.

It has been a similar story in Australia with many market commentators pushing back their forecasts for the timing of the RBA’s first rate cut. The cash rate has been on hold at 4.35 per cent since November and borrowers have seen 13 rate rises since May 2022.

While the RBA didn’t meet in April the central bank’s former governor Philip Lowe made headlines by telling the Australian Financial Review that the fight against inflation "isn't done" yet and the RBA might use another interest rate rise to push it down. However, most commentators expected the central bank to hold steady at 4.35% and the RBA duly obliged at its 6/7 May meeting. The Federal Budget on 14 May is looming as the next key event that may indicate the future direction of the local interest rate.

Data from the Australian Bureau of Statistics showed that retail sales fell by 0.4 per cent in March as consumers pulled back on discretionary spending. This is part of a broader trend with underlying retail turnover flat over the past six months. And while this doesn’t immediately sound like good news, uninspiring economic data at least means the RBA won’t feel compelled to increase interest rates. 

With Australians spending less than a year ago, sluggish consumer spending tells government, opposition and markets that higher interest rates are doing the job, and further hikes are not necessary.  Combine that with slowly rising unemployment and the suggestion is that a rate cut is now more likely than a rate hike over the remainder of 2024.

This should come as a big relief to mortgage holders who have reined in their shopping and dining out in recent times.

Globally, the desire to control inflation will see fluctuations in markets, which will likely be exacerbated by the many elections taking place in 2024. Obviously, by far the most significant is the upcoming US election in November.

US politicians have worked out that taking a hardline on China is a clear way to score political points and this may well lead to some market volatility in the short term. 

We prepare for uncertain times like this by, for example, building diversified portfolios that factor in volatility and the continuing ebb and flow of global events.

Market dips can be alarming for members closely watching their super and investments. However, it is important to remember that volatility can also create opportunities, and we have the liquidity built into our portfolios to capitalise on new investment opportunities. This is part of our commitment to drive performance for our members.

If you’re wondering about whether you should make changes to your investments, we recommend connecting with your financial adviser to review your investment goals, identify any potential opportunities, and make changes if necessary. 

 If you don’t have an adviser, you can find an adviser near you using our Find an Adviser service at cfs.findadviser.com.au. Call us with any general queries on 13 13 36, Monday to Friday, 8:30am to 6pm Sydney time (+612 8397 1100 from outside of Australia).