Global wrap
Global shares (unhedged) had another strong year, led by US equities and weakness in the AUD/USD. The soft-landing scenario became clear during the year, as inflation and cash rates eased. Towards the end of the year, a Trump win in the US Presidential election only added to bullish sentiment towards US equities and the USD and negativity towards China and commodities.
However, the bond market is not quite as enthusiastic about a Trump Presidency which might bring risks to inflation (tariffs) and the US budget deficit (lower taxes). Bond yields rose towards 4.5%, meaning bond prices fell. This is leading to muted returns from bond funds.
The US Federal Reserve (the Fed) also seems to be stepping back from rate cuts with the Fed likely to hold the cash rate at 4.25-4.50% in the short term. The market expects the US cash rate to only move down a little to 4.0% during 2025.
Sentiment towards China is currently negative on worries over looming US tariffs on Chinese exports. However, the Chinese central government has been steadily rolling out internal stimulus and we wouldn’t be surprised to see the mooted tariffs on China watered down after negotiation. In the meantime, softer commodity prices are a positive for the inflation outlook but a negative for Australia and the AUD/USD. We expect China to outperform expectations during 2025 on internal stimulus and a general recovery in global activity, as cash rates ease.

Australian wrap
The economy slowed to less than 1% growth during 2024 but nonetheless remains positive. It seems that government spending is providing key support for the economy but could also be keeping core inflation relatively high.
The RBA has refused to cut the cash rate even though headline inflation has fallen to 2.8%, below the RBA’s 2.0-3.0% target range. Instead, it is focused on core inflation which at 3.5% is still too high for the RBA. The Federal government is becoming more desperate for rate cuts as a Federal election looms by May 2025.
The good news is that a set of monthly and quarterly inflation figures are due in January 2025, which should show inflation continuing to ease. If so, the RBA is a chance of beginning the easing cycle in its first meeting of the year in February 2025, or more likely the next meeting in April 2025.
Negative sentiment towards China has seen general weakness in commodities, which has led to Resource and Energy sectors underperforming. The positive is that weaker commodity prices should help inflation ease further and this is a positive for the broader market. And as mentioned above, we think China will outperform expectations as the year progresses. Accordingly, we see good value in Australian Resources at the moment.
The AUD/USD surprisingly fell 6 cents over the course of 2024, which mostly relates to strength in the USD, post the Trump election win. This was surprising because the RBA held interest rates steady during the year, while the Fed began to cut interest rates in the second half of 2024. We still view the AUD/USD as oversold at current levels and expect a recovery during 2025. Our view is that the RBA easing cycle is unlikely to lead to further weakness as this is already priced into cash and bond markets.
Outlook
The main issue for 2025 seems to be: what does a Trump Presidency mean for geopolitics, global trade, inflation and the US budget deficit? Many of the narratives sound negative but actual outcomes are hard to predict. In addition, an easing cycle underway in most major countries is a general positive for global growth. We think an easing in inflation and interest rates will generally outweigh any potential negatives from Trump’s policies but clearly a major risk is Trump’s policies having unintended consequences.
While the US equity market has had a strong rally over the past 2 years, market multiples don’t seem extreme and a broadening out of market performance (away from Financials and Technology) could support the market in 2025. We also expect China to outperform negative expectations.
Overall, we remain positive on the outlook for global growth and company earnings in 2025.
Key known risks
The RBA continues to delay rate cuts on inflation concerns;
China continuing to disappoint on growth;
Trump Presidency and its implications for global trade, inflation and the US budget deficit; and
Geopolitics and/or climate change events impacting global trade and financial markets.
Next key events
US President inauguration – 21 January 2025
US Federal Reserve meeting – 29 January 2025
Australian December quarter/month CPI – 29 January 2025
RBA meeting – 18 February 2025
Australian Federal election – due before 17 May 2025
Bill Keenan
Principal, Portfolio Manager

Bill Keenan is the founder of Sunbird Portfolios. Sunbird provides independent advice to leading financial advisers across Australia.
Bill has 30 years’ experience in financial markets and holds a Bachelor of Business in Accounting and a Graduate Diploma in Finance and Investment.
Warnings
General Product Advice - any advice provided in this document, is general in nature only and does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, the reader must consider whether it is personally appropriate considering his or her financial circumstances or should seek independent financial advice on its appropriateness.
Past performance is not a reliable indicator of future performance.
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