Fund watch

What happened in Q1?

Here are some key themes from the first quarter of 2024:

Inflation remains sticky in the US; trends lower in Europe: While inflation has fallen over the past 12 months, progress stalled in the US, with the annual Consumer Price Index (CPI) at 3.1% in January and 3.2% in February, both were ahead of consensus, raising concerns that bringing inflation back to its 2% target rate may be more challenging than expected.

It was a better story in Europe. Year-on-year inflation in the Eurozone fell to 2.6% in February, while in the UK it dropped to a two-year low of 3.4% for the same period.

Interest rates on hold for most: Heading into the year, investors appeared confident interest rate cuts could be seen as early as March. However, these expectations were pushed out as growth data remained resilient and labour markets remained tight in many economies.

Given this, most of the major central banks pushed back on the idea of rate cuts anytime soon, saying they wanted to be confident that inflation was heading back to target levels before cutting. It meant that most left interest rates unchanged, including those in the US, Europe, UK and Australia.

Closer to home, the Reserve Bank of New Zealand left the Official Cash Rate (OCR) unchanged at 5.50%. It also delivered a somewhat dovish statement, with the central bank lowering its forward track – the rate it expects the OCR to peak – to 5.60%, down from 5.69%, implying a less-likely chance of further interest rate hikes.

The outliers were Japan and Switzerland. The Bank of Japan raised its lending rate 10 basis points, becoming the last country in the world to end a policy of negative interest rates, while, the Swiss National Bank cut interest rates, saying it’s confident inflation there would return to target.

This article has been prepared by ANZ New Zealand Investments Limited (‘ANZ Investments’) for information purposes only and it should not be treated as financial advice.

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