Fund watch

What happened in Q4?

Here are some key themes from the fourth quarter of 2023:

Fed leaves interest rates unchanged, but its ‘pivot’ sends markets higher: The Fed kept interest rates on hold throughout the quarter, maintaining its target range of 5.25% to 5.50%. However, following its December meeting, attention turned to Committee members’ updated expectations for the path of interest rates, as the Fed’s closely watched dot plot of interest rate expectations signalled that its inflation fight would no longer require another rate hike, and instead implied three quarter-point rates cuts in 2024.

Inflation weaker and labour market pressures easing: Markets also got a boost from easing US inflationary pressures. While November’s CPI (Consumer Price Index) data showed that the prices of goods and services edged higher, it was in line with expectations, and the annual rate continued to decline, falling to 3.1%.

Falling gasoline prices have been a key disinflationary force, while shelter prices (rents) – which make up a third of the CPI weighting – continue to show a steady decline having peaked earlier in the year.

An easing labour market has also been good news for Fed policymakers. Although payrolls grew faster than expected in November, the unemployment rate rose to 3.7%. And while wages are running higher than what would be consistent with the Fed’s 2% inflation target, they have gradually been cooling off too.

Oil prices fall sharply: Oil prices fell despite ongoing geopolitical unrest following October’s attack by Hamas on Israel. In fact, the price of a barrel of oil fell 21% over the quarter (in USD terms), as investors worried about sluggish demand for energy in China, and as oil output in the US remains close to record highs.

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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