January proved to be a solid start for markets in 2019 as a softening in the Fed’s rhetoric and strong(ish) Australian CPI data encouraged sentiment. Fed Chairman Jerome Powell announced the Fed would be “patient” on any future rate changes and signalled flexibility in its balance sheet normalisation policy, which tempered volatility for the time being. Brexit and US-China trade war headwinds continue to persist whilst US reporting season produced a mixed bag of results. Domestically, CPI data came in above expectations for the first time in two years but was still fairly soft (0.5% for the quarter and 1.8% for the year) as the RBA downgraded its outlook for the Australian economy based on softer data. The banks are feeling the pressure of rising funding costs from a rising / sustained 3M BBSW and intensifying market competition, which has seen short-term and long-term TD rates fluctuate in January. Figure 1. Term Deposit Spread Over Relevant BBSW: January 2019 vs December 2018 Source: RBA, BondAdviser For full details, charts and commentary, please click here for the full pdf version.