Market Key Points
- The domestic equity market took the lead from European and US markets, finishing higher in January, while REITs moved lower.
- US equity markets rose in January in the face of rising geopolitical tension and the start of another US earnings season.
- Fixed interest performance was generally mixed over the first month of the year, with Japan normalising its monetary policy and European yields moving off December highs.
Australian equities
Australian equities delivered a steady start to the year, with the S&P/ASX 200 Accumulation Index rising 1.8% in January. Strength was concentrated in the Energy and Materials sectors, which surged 10.6% and 9.5% respectively, supported by firm commodity prices. Defensive sectors such as Health Care, Consumer Staples and Utilities also posted modest gains, while Information Technology remained under pressure, falling 9.4%, and REITs declined 2.7%.
Smaller companies continued to outperform, with the S&P/ASX Small Ordinaries Index up 2.7% for the month and 22.8% over the past year. Deep Yellow Limited led the market with a 54.3% jump following a strong quarterly update and a sharp rise in uranium prices, while Paladin Energy also benefited from the uranium rally, gaining 44.3%.
On the downside, Zip Co fell 19.5% amid concerns about the US consumer environment, despite reporting strong user growth, and Silex Systems dropped 19.1% after failing to secure major US Department of Energy funding. Economic data was mixed, inflation rose to 3.8% in December above expectations and outside the RBA’s target range, while the labour market remained resilient, with unemployment easing to 4.1% and employment growth significantly exceeding forecasts.
Global Equities
Global developed markets were more mixed in January, with the MSCI World Index (AUD) falling 2.7%. The US market held up relatively well, with the S&P 500 rising 1.4% as earnings season began and geopolitical tensions intensified. Value stocks outperformed growth globally, and small caps delivered a strong month.
European markets were broadly positive, with the UK and Germany posting gains, while Japan’s Nikkei 225 surged 5.9% after the Prime Minister announced a snap election and plans for substantial fiscal stimulus.
Central banks maintained a cautious stance, with the US Federal Reserve holding rates steady and signalling that further progress on inflation is needed before easing resumes. Inflation data in the US was mixed, with headline inflation edging higher and core inflation remaining sticky, though economic growth stayed solid.
Commodity markets strengthened across the board, the S&P GSCI rose 9.1%, oil rebounded 13.6% amid geopolitical disruptions and weather related supply issues, gold rallied 13.3% to briefly touch US$5,600 per ounce, and copper continued its upward trend while iron ore remained stable.
Emerging Market Equities
Emerging market equities outperformed the developed markets in January, with MSCI Emerging Market Index (AUD) rising 3.6%. China contributed modestly to the gains, with the CSI 300 up 1.7% as investors continued rotating into the region’s technology names. However, China’s economic data remained soft.
The NBS Manufacturing PMI slipped back into contraction at 49.3, reversing December’s brief expansion and underscoring ongoing fragility in factory activity. Industrial production held steady with mid‑single‑digit year‑on‑year growth, broadly in line with expectations, while retail sales showed only a mild improvement, highlighting persistent weakness in household consumption despite ongoing policy support.
Overall, emerging markets benefited from selective sector strength and improving sentiment, even as China’s recovery remained uneven.
Fixed Income
Fixed income markets experienced a mixed month as global government bond yields moved higher. In the US, the 10‑year Treasury yield rose 16 basis points to 4.26%, following a period of late 2025 volatility, while the Federal Reserve held policy steady and reiterated that inflation remains above target.
Japanese government bonds also saw meaningful moves, with the 10‑year yield climbing nearly 17 basis points to 2.24%, driven by reduced bond purchases and expectations of further monetary policy normalisation ahead of snap elections.
European yields generally eased from December highs, although UK gilts continued to drift upward. In Australia, 10‑year bond yields rose another 7 basis points to 4.81%, as stronger‑than‑expected inflation data dampened any prospects of rate cuts in 2026. Overall, bond markets reflected a cautious tone as investors reassessed the path of global monetary policy.
Property and Infrastructure
The S&P/ASX 200 A-REIT Accumulation Index fell by 2.7% in January, bringing its rolling annual return to 1.6%. Global real estate equities outperformed, rising by 2.8% during the month, as shown by the FTSE EPRA/NAREIT Developed NR Index (AUD Hedged). Global infrastructure also outperformed, up 3.8% in January, as measured by the S&P Global Infrastructure TR Index (AUD Hedged).
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