Globally equity markets performed strongly in December. In the US, the S&P500 rose +4.4%, the Nasdaq was up +5.5%, whilst in the UK, the FTSE100 increased +3.8%. Bond markets were a big driver in sentiment towards equities in the month, where bond yields continued to fall as inflation data softened, which in turn has implications for future monetary policy.

In the US economy, many bond investors now believe we have seen the peak in interest rates, with prospects for rate cuts in 2024 now a possibility. In Australia, we believe it is more realistic to expect rates to stay at current levels until there is clear evidence that inflation is falling to targeted levels. In the US, the 10-year bond rate fell -42 basis points to close at 3.84%. For context, the bond yield has fallen ~1% from its October highs where it reached just under 5%, which is a very material decrease. In Australia, the 10-year government bond fell -45 basis points to close at 3.96%. The AUD/USD exchange rate appreciated 2 cents to close at US$0.68, as investor risk appetite increased.