Market Update - 20th April 2024

Written by William Cooper

Domestic:

The domestic markets were hit hard over the past fortnight as the ASX200 is down over 2.73% for the period, the largest drop came on Tuesday where the market slid 1.81% over the course of the day. Utilities and Materials managed to remain positive, whilst the rest of the sectors saw downfalls, the worst performer being Communications who led the slumps at 3.4%. The mining sector can attribute its gains to rises in the price of iron ore which jumped over 7% for the fortnight. However, the RBA has warned that the price of iron ore may soon hit its peak, with RBA analysts predicting iron exports to fall by 80% as the country’s population continues to decline and less homes are being built. China accounted for 85% of Australia’s iron ore exports in 2023, so this could significantly impact Australian foreign derived income.

Bond prices have decreased over inflationary data as traders demand higher yields to compensate them for the higher-for-longer interest rates expected. The yield on the 10-year Australian bond currently sits at 4.37%, which has steadily increased since the start of the month from 3.98%. Bond prices and interest rates share an inverse relationship so as inflation remains high, interest rates increase, and bond prices will continue to fall.

International:

The ASX is currently reflecting how heavily influenced it is by the US markets and economy. The recent heavy losses are the result of shifting investor expectations as new inflationary data came out of the US, with Federal Reserve chair Jerome Powell declaring that if high inflation persists then rate cuts will continue to be delayed, and as long as necessary. The US was hoping for a number of rates cuts this year, but this confidence is declining as inflation consistently remains above the Fed’s target of 2%.

The second largest economy, China, beat GDP forecasts in the first quarter, reporting faster than expected economic growth, but it looks like things will get tougher as the year goes on. Manufacturing continues to be strong, but the real estate crisis is weighing in lowering confidence, as factory prices continue to decline reflective of poor domestic demand. Regional markets in Asia also tumbled on Tuesday, the most since August last year, again reflective of the power the US economy has on the rest of the world.