Each month we provide information on the latest market updates highlighting national and international events and current market trends.  Reports from the last few months can be found below.

• Market Commentary April 2019

  Equity markets continued to rally in the month of April, buoyed by positive rhetoric regarding US-China trade, an increasingly dovish tone from major central banks, including the US Federal Reserve (Fed), and macro-economic data releases from China that surprised on the upside.  In Europe, the EU and the UK agreed to extend the Brexit deadline to 31 October 2019, deferring the prospect of a no-deal exit and providing support for the markets in the region.

  In the US, the S&P 500 Index returned 4.0% in April during which it reached an all-time high and officially confirmed the current bull market as the longest on record.  The US reporting season saw earnings exceed previously reduced expectations, particularly for banking stocks which resulted in Financials being the best performing sector in April.  Cyclical sectors, including Communication Services and Consumer Discretionary, outperformed defensive sectors in a regime shift from March that was mirrored in by the global index.  Key to the risk-on behavior was the release of the Fed’s minutes from its March meeting which confirmed a more balanced view toward the likely direction of policy interest rates.  Further support came from a series of ‘goldilocks’ data releases, such as a steady unemployment rate (3.8%) and wage growth (3.3% y/y) at a level not high enough to raise concerns of an inflation outbreak.  At the same time macro-economic data emerging from China was positive, with GDP growth for the March quarter stabilising at 6.4%, driven by stronger Industrial Production (+8.5% y/y).  Yields on 10-Year US Treasuries increased on the back of the improved macro-economic backdrop.

  In Australia, the Reserve Bank of Australia (RBA) left the official cash rate on hold at 1.5%, unchanged for 33 months.  However, slight changes to the language in Governor Lowe’s accompanying statement were interpreted by the market as reflecting an easing bias.  Australian Bond yields fell across most of the curve, particularly the short end, with expectations of a 0.25% rate cut by October fully priced in by the end of the month.  Competing tensions between the labour market and growth and inflation continued in April as a strong employment reading (+26k), was in contrast to a weak CPI report for the March quarter, which reduced the annual core inflation figure to 1.4%.

  In turn, Australian equities had a reasonable month with the ASX 300 up 2.5%, though underperforming global equities (MSCI World ex Australia Index hedged up 3.9%). The underperformance of cyclicals was also observed domestically as defensive sectors including REITS (-2.3%) and Utilities (-0.5%) were in negative territory.  Information Technology (+7.3%) was the best performing sector, while Consumer Staples (+7.3%) benefited from the Chinese growth story that saw a spike in the share price for ‘desirable’ Australian goods producers like A2 Milk and Treasury Wine Estates.  Australian small caps stocks (4.1%) outperformed, while large caps stocks (2.1%) underperformed the broader market.

  The Australian Dollar depreciated against all major currency pairs on the back of domestic rates expectations despite an increase in the price of iron ore (+8.8%) which appeared to provide little support. The most pronounced falls were against the USD (-0.9%), Pound (-1.0%) and Euro (-0.7%), while declines were more modest against key Asian currencies.

  Bond yields increased across most developed nations with the US-10 year rising to 2.5%, UK 10-year rising to 1.2%, while the Euro 10-year yield emerged out of negative territory to end the month slightly above 0.0%.  The Australian 10-year yield also increased ending the month at 1.8%.

  

  Source: FactSet / JANA

  

  Source: FactSet / JANA

• Market Quarterly Commentary - March 2019

  Monetary policy and geopolitical concerns remained at the forefront of global markets in the first quarter of 2019, although the range of potential outcomes improved. Global markets rallied on the back of apparent progress in US-China trade negotiations as well as indications that the US Federal Reserve (Fed) would become more ‘patient’ and halt further rate hikes for a period of time.

  The US equity market posted substantial gains in early 2019 in light of renewed optimism surrounding US-China trade talks. Trump’s suspension of tariff increases on $200 billion of Chinese goods scheduled for 1 March 2019 was well received by market participants who resumed a risk-on stance. The market was also boosted by strong reported earnings for the December 2018 quarter, which saw 70% of the S&P 500 surpassing expectations. The Fed’s shift away from a tightening bias provided near-term relief with riskier assets posting substantial gains throughout the quarter, however the slowing pace of global markets in March attests to lingering concerns surrounding the outlook for economic growth.

  Globally, central bank policy grew increasingly accommodative in the absence of inflationary pressures and this drove positive returns for both government and corporate bonds as yields fell. This was perhaps most notable in the US bond market where 10-year Treasury bond yields fell below 3-month Treasury bill yields, inverting the yield curve. Historically, an inverted yield curve has been used as an indicator of a pre-recessionary environment. Elsewhere, uncertainty surrounding Brexit remains a heightened risk, however the delay of Brexit beyond March 2019 provided some respite for the UK equity market which rallied over the quarter alongside its developed market counterparts.

  From an Australian perspective, fourth quarter 2018 GDP data released in March showed a disappointing growth rate of 0.2%, due to falling household spending and dwelling investment. The Reserve Bank of Australia (RBA) left the official cash rate on hold at 1.5%, as it adopted a more neutral stance on monetary policy in light of muted inflationary pressures and softer economic growth. Banks experienced a relief rally in the wake of the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, which was light on specific recommendations for the banks' core business structures. Meanwhile, Chinese stimulus boosted commodity prices and allowed major mining stocks BHP Group and Rio Tinto to post double digit returns.

  The MSCI World ex-Australia Index (hedged into AUD) returned 12.8% over the quarter as developed markets rebounded from a weak end to 2018 and outperformed emerging markets. Among the best performing countries were Belgium (18.3%) and Italy (16.8%), while Japan (7.8%) and Germany (8.9%) both lagged the broader index. Within emerging markets, Argentina (-2.0%) continued to underperform, while China (17.9%) recorded a strong quarter of performance.

  The S&P/ASX 300 Accumulation Index (10.9%) underperformed hedged overseas equities over the quarter. Small cap stocks outperformed large cap stocks, with the ASX Small Ordinaries Accumulation Index returning 12.6% and the S&P/ASX 50 Accumulation Index returning 10.9%. Australian Property trusts (14.4%) outperformed the broader equities market and marginally underperformed Global Property (14.8%).

  Australian bonds returned 3.4% over the fourth quarter, outperforming hedged international bonds (2.8%). The Australian dollar (AUD) appreciated against the against the USD (0.9%), the Euro (2.7%) and the Japanese Yen (1.8%), while depreciated against the Pound (-1.4%) and the New Zealand dollar (-0.8%).

  

  Source: FactSet / JANA

   

  

  Source: FactSet / JANA

   

• Market Commentary March 2019

  After a strong market rally in the first two months of 2019, driven by the US Federal Reserve (Fed) and optimism around the US-China trade standoff, March saw more benign markets. This slowing pace was due to growing investor caution, prompted by increased global recessionary fears, continuing geopolitical concerns (namely the US-China trade deal and Brexit), and a return to higher market valuations.

  Driving this global trend was the slowing in the US equity market’s upward progress, with the S&P500 appreciating just 1.8% over the month. The more defensive sectors of Consumer Staples and REITs were the strongest performing. While investors have been buoyed by the Fed’s more accommodative tone (i.e. no longer holding a tightening bias), they are cognisant of the broader implications for economic growth. Notably, the Fed downgraded its projections for US GDP growth from 2.3% to 2.1%, lowered its inflation forecasts by 10 bps to 1.8%, and reduced expectations for interest rates hikes. Indeed, the Fed’s median member forecast (i.e. the “dot plot”) now shows no rate hikes for 2019 and only one in 2020. This patient approach is most evident through the Fed Chairman Jerome Powell remarks that “it may be some time before the outlook for jobs and inflation calls clearly for a change in policy”.

  The Fed’s adjusted growth outlook also played out in US bond markets, causing yields to fall particularly longer term rates, driving positive bond returns over the month. Of note, the fall in longer term interest rates caused the US Treasury yield curve to invert (the three-month Treasury bill yield is higher than that of 10-year bonds) for the first time in ten years. This is historically a signal associated with a pre-recessionary environment.

  In Australia, the Reserve Bank of Australia (RBA) left the official cash rate on hold at 1.5%, unchanged for 32 months. The RBA have also maintained its more recent neutral view, continuing to assign an equal probability that its next move could be an increase or decrease in the policy rate. This is predominately due to the RBA balancing the continued strength in the labour market (unemployment rate 4.9% in February), with other indicators that suggest a weakening economy, such as the December quarter GDP report which registered a low 0.2%. Despite this weakness, the RBA maintained a 3% growth target for 2019.

  Akin to global markets, the Australian equity market slowed in March, with the ASX300 rising just 0.7%, slightly underperforming global equities (1.7%). Energy (-4.1%) and Financials (-2.6%) were the worst performing sectors over the month, while the more defensive sectors of REITs (6.0%), Telecommunications (3.8%) and Consumer Staples (3.7%) were the strongest performing sectors. Australian large caps (1.0%) outperformed, while small caps stocks (-0.1%) underperformed.

  Most major currencies pairs were relatively range bound over the quarter, with most central banks moving to or maintaining relatively dovish views (i.e. more accommodative monetary policy). Notably the GBP was weaker across the board, predominately due to prolonged Brexit negotiations. The AUD depreciated against the USD (-0.2%) and Yen (-0.7%), but appreciated against the Euro (1.3%), and Pound (1.9%).
  Bond yields decreased across almost all developed nations, with UK 10-year yields falling to 1.00%, US 10-year yields falling to 2.42% and Euro 10-year falling below zero to -0.07%. The Australian 10-year bond yield fell marginally to 1.77%, as did the New Zealand 10-year bond yield falling to 1.81%.

  
  Source: FactSet / JANA

   
  Source: FactSet / JANA

• Market Commentary February 2019

  The main factor driving market returns in February was US-China trade talks. Despite an impasse over tariffs, intellectual property and for the Chinese tech sector, there was enough progress for Trump to suspend a tariff increase on $200 billion of Chinese goods scheduled for 1 March 2019. Investors took this action as a positive and optimism increased that a resolution to the US-China Trade standoff is near. Another factor supporting the market, was commentary from the US Federal Reserve chairman, Jerome Powell, reaffirming the banks “patient approach” to interest rates management. Lastly, the market responded positively to the roll out of Chinese stimulus measures, such as lowering the capital reserve requirements for commercial banks, cutting taxes and stepping up infrastructure investment.

  US equities rose on a solid quarterly earnings season, which saw 70% of the S&P 500 beating expectations in the December quarter, and from the suspension of the tariff increases on Chinese goods due to start in early March. There was also a surge in US jobs growth and consumer confidence. Eurozone equities gained, buoyed by the news that the ECB was looking to restart its targeted long-term refinancing operations, which provides banks with low cost funding. UK equities rose on hopes that the UK would avoid a disorderly exit from the European Union. After a very strong rally last month, Emerging Markets (EM) rose marginally in February. Supporting EM was a less restrictive outlook for US monetary policy and the prospect of a weaker US dollar, as well as easing trade tensions. However, some EM countries are still dealing with currency depreciation and inflation, and there were market detracting geopolitical tensions between Pakistan and India over the disputed Kashmir region.

  The Australian equity market outperformed most global peers, and the ASX 300 returned 6.0% in February. The RBA left the official cash rate on hold at 1.5%, unchanged for 31 months, although Reserve Bank of Australia (RBA) governor, Philip Lowe, indicated the Bank had moved to a neutral stance on Monetary policy, whereas previously there was a tightening bias. Banks experienced a relief rally in the wake of the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, which was light on specific recommendations for the banks' core business structures. Stocks were also supported by stronger commodity prices from Chinese stimulus and a better than expected domestic earnings season.

  Australian small caps stocks (6.8%), and to a lesser extent large caps (6.1%), outperformed the broader market, while mid-caps lagged (5.0%). Consumer Staples (-1.4%), Health Care (1.3%) and Property Trusts (1.8%) underperformed in February, while Financials significantly outperformed (9.1%), primarily due to Banks rising as the market reacted positively to a less prescriptive Royal Commission Report.

  The Australian dollar depreciated against most major trading partners during the month, falling against the USD (-2.4%), the Yen (-0.2%) and the Pound (-3.5%). The weakening Australian dollar resulted in unhedged global equities (5.6%) outperforming hedged global equities (3.5%). Denmark and Greece (both 6.5%) were the top performing MSCI developed markets, whilst the UK (2.3%), Japan (2.3%) and Singapore (0.3%) underperformed. In aggregate, developed markets (5.6%) outperformed emerging markets (2.7%).

  Bond yields rose across most developed nations, as the UK 10-year yield rose to 1.31%, the US 10-year yield rose to 2.7% and the Euro 10-year closed higher at 0.19%. The Australian 10-year bond yield fell marginally to 2.10%, as did the New Zealand 10-year bond yield falling slightly to 2.16%.

   
  Source: FactSet / JANA

  
  Source: FactSet / JANA

   

• Market Commentary January 2019

  January provided some respite for global markets as concerns over rising US interest rates faded, China signaled a continued desire to stimulate the economy and the US temporarily reopened the government after the longest federal government shutdown in history.
  
  The US equity market started the 2019 calendar year positively with the S&P 500 appreciating 7.9% over the month of January. In large part this strong performance was driven by the Federal Reserve (Fed) indicating they would become more ‘patient’ in their pursuit of policy normalisation. These comments were welcomed by investors and alleviated fears the Fed was too ‘hawkish’ with their interest rate policy (i.e. wanting to continue to tighten). Furthermore, robust economic data in the US, despite a federal government shutdown for most of January, and news that trade talks with China were progressing were viewed favorably by global markets.
  
  Elsewhere, the UK equity market followed global markets up, buoyed by stronger than expected GDP growth and falling inflation. This was despite all the challenges the UK faces with the imminent Brexit deadline after Theresa May’s Brexit deal was defeated convincingly in UK Parliament in January. In China, growth continued to slow as the effects of the US/China trade war flowed through to the broader economy. However, Chinese equity markets moved higher over the month as the People’s Bank of China (PBOC) announced additional easing measures and positive news flow in relation to trade talks with the US.
  
  The Australian equity market rallied alongside global equity markets in January with the ASX 300 rising 3.9% January, although performance was more modest than global equities (7.1%). The weaker relative performance was driven by the Financials sector (-0.3%) which was weighed down by investor expectations of potential negative implications flowing from the Royal Commission into Financial Services final report which was due for release in early February. The Energy sector saw the largest monthly appreciation (11.5%) as crude oil prices rebounded from a disappointing December quarter, followed by the IT sector (8.8%) which also benefited from the global market rally.
  
  The Australian dollar appreciated against most major currencies during January, rising marginally against the Pound (0.3%), and more significantly against the USD (3.6%), Euro (3.2%), and Yen (2.7%). In aggregate, these moves resulted in hedged global equities (7.1%) outperforming hedged equites (4.1%).
  
  Slightly lower bond yields across most developed markets led to small positive returns for most bond indices. Yields on US 10-year (2.63%), Australian 10-year (2.23%), and UK 10-year (1.22%) government bonds all traded lower. Credit indices outperformed broader fixed income indices over the month recovering some of the losses from late 2018.
  
  

  

  Source: FactSet / JANA

  
  
  

  Source: FactSet / JANA

• Market Quarterly Commentary December 2018

  Rising geopolitical tensions set the tone for the quarter as global markets experienced a spike in volatility. The material decline in markets over the fourth quarter, and especially sharp decline in December, was largely attributable to persistent concerns over rising US interest rates, global trade tensions and slowing economic growth. The risk-off sentiment was reflected in lower bond yields over the quarter, as the US Federal Reserve’s (Fed) comments indicated a slightly more dovish tone and the potential for a slower path towards interest rate normalisation, with two rate hikes now expected in 2019.

  
  Political affairs continued to weigh on sentiment throughout the quarter. Developments in the US-China trade tensions led to a deferral in the 1st January 2019 tariff increases, as well as China announcing they would purchase a substantial amount of agricultural, energy and other goods from the US. In the face of these external headwinds, China’s growth has slowed, with the economy recording its weakest quarterly growth since the global financial crisis. In response to decelerating growth, the People’s Bank of China (PBoC) cut its reserve requirement ratio in October in an attempt to stimulate bank lending. In Europe, the European Central Bank (ECB) announced it would stop its quantitative easing programme in January, confirming interest rates would stay unchanged until the end of summer 2019. The long-running controversy over Italy’s budget for the 2019 fiscal year was settled, narrowing its budget deficit to 2.04% compared to the 2.4% originally envisaged. The UK published its draft EU Withdrawal Agreement in November, which was met with mixed reactions, particularly around the proposal for the Northern Ireland border. The ongoing uncertainty around Brexit has raised questions on the political stability of the UK government, weighing heavily on business and consumer confidence. Oil prices fell over the fourth quarter amid concerns of a supply glut and weakening outlook in global demand.

  
  The Australian economy grew a meagre 0.3% over the third quarter, which was the weakest growth in two years. The Reserve Bank unsurprisingly kept rates on hold at 1.50%, as inflation disappointed with the consumer price index (CPI) at 1.9% annualised for the September quarter. Investor sentiment has become more negative, pricing in increasing regulatory risk and a potential change in Government. From a fundamental perspective, the Commonwealth Treasury’s Mid-Year Economic and Fiscal Outlook provided an improved 2019/20 budget surplus forecast from A$2.2B to A$4.1B, strengthening economic expectations.

  The MSCI World ex-Australia Index (hedged into AUD) declined 13.5% over the quarter. Emerging markets broadly outperformed developed markets, with Brazil (10.2%) and Hungary (6.7%) posting the strongest returns. Across developed markets, Hong Kong (-4.5%) and Singapore (-6.9%) were among the strongest performing countries, while Austria (-19.4%) and Japan (-17.1%) underperformed the broader developed market in local currency terms.

  
  The S&P/ASX 300 Accumulation Index (-8.4%) outperformed hedged overseas equities for the quarter and over the one-year period. Small cap stocks underperformed large cap stocks, with the ASX Small Ordinaries Accumulation Index returning -13.7% and the S&P/ASX 50 Accumulation Index returning -6.8% over the quarter. Global listed property underperformed Australian listed property, with the FTSE EPRA/NAREIT Developed Index (hedged in AUD) returning -5.5%.

  
  Australian bonds returned 2.2% over the fourth quarter, outperforming hedged international bonds (1.7%). The Australian dollar (AUD) depreciated against all major currencies over the quarter, falling against the USD (-2.7%), the Euro (-1.1%) and Pound (-0.4%), the New Zealand dollar (-3.8%) and the Japanese Yen (-6.0%).

   
  Source: FactSet / JANA

   
  Source: FactSet / JANA

   

• Market Commentary December 2018

  Weakness in global markets accelerated in December as concerns over rising US interest rates, continued geopolitical concerns and less synchronised global growth weighed heavily on investor sentiment. Hopes of a “Santa Rally” were short-lived, as December registered its worst monthly performance since 1970. This period of weakness was also combined with a material spike in market volatility. From a fundamental perspective, while some economic data points were weaker than expected, in aggregate economic data remained positive, with US growth expectations holding steady and global growth expectations only declining modestly.

  The US equity market fell in December for the second consecutive month, with the S&P 500 declining 9.1%. Increased uncertainty around monetary policy contributed to the sharp market decline. During the month, the Fed raised its benchmark interest rate by 0.25% to a range of 2.25% to 2.5%. While this was the fourth increase in 2018 and widely expected by investors, the Fed did lower its projections for future hikes in 2019. From a geopolitical perspective, ongoing trade concerns between the US and China thawed, with both countries commenting on the ongoing positive dialogue. Notably, the US announced a deferral in the 1st January 2019 tariff increases (from 10% to 25% on selected Chinese good) and China announced they would purchase a substantial amount of agricultural, energy and other goods from the US. Somewhat offsetting this positive tone was the arrest of a senior executive of Chinese company Huawei in Canada, at the request of the US. The European Central Bank announced it would stop its quantitative easing programme in January despite the slowdown in growth, instead focusing on the firming wage growth across Europe. Oil prices crude continued to sell-off in December amid concerns of a supply glut and a global economic slowdown.
  
  The Australian economy grew a meagre 0.3% over the third quarter, which was the weakest growth in two years. The slowing pace of expansion was largely driven by a sharp pull-back in household spending and non-residential construction. The ASX 300 fell 0.2% over the month, significantly outperforming global markets. The Telecommunications (-5.1%) and IT (-4.1%) sectors drove this decline over the month, while Materials (5.1%), Utilities (2.8%) and Health Care (2.4%) were the strongest performing sectors. Australian large caps (0.6%) outperformed, while small caps stocks (-4.2%) underperformed.
  The Australian dollar depreciated against all major currencies during December, falling to its weakest level since February 2016, on the back of weak China manufacturing data. The AUD fell against the USD (-3.6%), Yen (-6.9%), Pound (-3.4%), and Euro (-4.5%). In aggregate, the depreciation in the AUD resulted in MSCI World Index unhedged returns (-4.2%) outperforming hedged returns (-8.3%).
  
  Bond yields fell across most developed markets over the month, with the US 10-year falling to 2.7% to conclude the year only fractionally higher than the beginning of the year. In Australia, the 10-year yield fell to 2.3%, while yields in in the UK, Japan and Eurozone declined modestly.

   
  Source:FactSet/JANA

   
  Source:FactSet/JANA