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 February 2020

  After the backdrop of strong market returns throughout 2019 and the first part of 2020, from mid-February the spread of the coronavirus COVID-19 sparked fear that the health crisis would stifle global economic growth. Global equity markets started the month strongly, but these early gains were quickly retraced as the spread of coronavirus outside China saw global equity markets sell off.

  Sentiment remained upbeat in the US as the S&P 500 reached record highs. Strong non-farm payroll data, a better than expected reporting season, and the acquittal of President Trump all contributed to strong performance early in February. As the month progressed, the escalation in number of cases of COVID-19 outside China, and in particular the reports of a growing number of cases in Europe and the US, triggered an aggressive sell off in global equity markets and sharp decline in US Treasury yields to a record low of 1.1% for the US 10-year bond. The Eurozone, similar to the US, performed poorly over February (-6.0%). The forward-looking PMI survey indicated that the Eurozone composite had risen to 51.6 but hopes that this would lead to a rebound in growth were abated when the number of cases of COVID-19 escalated, particularly in Italy.

  In February, China continued to implement measures to limit the impact of COVID-19, including limiting travel and attendance at work. In spite of these factors that impinged on economic growth and decimated Chinese PMI figures, the MSCI China Index (+1.2%) outperformed the broader market Index as the number of new cases of coronavirus stabilised over the month. Elsewhere in emerging markets, Turkey (-11.1%) underperformed due to increased tensions with Syria, and Russia lagged (-10.5%) primarily due to the sharp decline in oil prices, a result of the breakdown of negotiations with OPEC on implementing further supply cuts.

  Australia was not immune to the sell-off experienced by the global markets as it traded 7.8% lower. The sharp decline of the crude oil price (-13%) saw the Energy sector underperform the broader market. In contrast, Health Care (-4.0%), Utilities (-4.0%) and Property (-4.7%) all outperformed the broader Index. February also saw the earnings reporting season end, with more companies missing expectation than those that exceeded expectations. Real Estate and Industrials earnings performed the strongest, marginally beating expectations, while Financials, Consumer Discretionary, Communications, and Health Care all missed expectations by a significant amount. The Reserve Bank of Australia kept interest rates at 0.75%, stating that the 2019 cuts had their desired effect in “supporting employment and income growth”.

  The MSCI World Index ex-Australia (hedged into AUD) fell 8.4% over the month. In developed markets, Hong Kong (-1.1%) and Singapore (-5.0%) outperformed the broader market, while Greece (-21.4%) and Japan (-9.6%) underperformed. The MSCI Emerging Markets Index (-1.6%) outperformed unhedged developed markets (-4.5%).

  The Australian Dollar depreciated against most of the major developed market currencies over the month, retreating 3.7% relative to the US Dollar and 4.2% relative to the Japanese Yen. The bond markets posted positive returns in February with yields reaching record lows in a number of major economies. The US 10-year ended the month at 1.14%, the Australian 10-year at 0.82% and the UK 10-year at 0.42%.

   

  

  Source: FactSet / JANA

• Market Commentary January 2020

  Equities and other risk markets initially continued their strong momentum in January 2020, following the positive sentiment in late 2019 and the signing of a ‘Phase One’ trade deal between the US and China. Equities dipped briefly early in the month after the dramatic escalation of tensions between Iran and the US, which subsequently de-escalated swiftly. However, it was primarily fears late in the month of the rapid spread of the Coronavirus, and its potential impact on growth, namely in Asia, that turned sentiment negative. Economic data globally continued to show some stabilisation or marginal improvement, and major central banks continued to remain accommodative, which lessened some near-term recession fears.

  The outbreak of Coronavirus, originating in Wuhan, China, occurred over a period of increased travel within the country over the Lunar New Year, likely aiding the spread of the disease. Given we are still in the early stages of the outbreak, the quantum of its impact on human life, and subsequently markets and economies, is difficult to gauge at this stage. What is certain is a near-term drag on growth in China and its neighbours and key trading partners. Already the potential for decreased demand contributed to the price of Brent crude oil falling 11.9% over the month.

  The signing of a ‘Phase One’ trade deal between the US and China, officially signed on the 15 January, was well received by markets. However, it is important to note that significant tariffs and structural issues, to be covered in the next phase, remain and are not likely to be resolved easily. Another significant event was that the UK officially exited the EU on 31 January 2020. Similar to the US/China trade deal, a high level of uncertainty remains, as the UK and EU now need to negotiate a new free trade agreement during the 11-month transition period. Consequently, the risk of a ‘hard Brexit’ remains, and could potentially intensify over the year if there is not material progress in the negotiations.

  In Australia, the Reserve Bank of Australia (RBA) did not have a meeting in January, however at their meeting on 4 February, left the cash rate unchanged at the historic low of 0.75%. RBA Governor Philip Lowe noted that it is reasonable to expect an extended period of low interest rates and that the Bank remains prepared to ease monetary policy further if needed.

  In contrast to most global markets, the Australian equity market rose 4.9% in January, with the Health Care (12.0%) and IT (10.2%) sectors posting the largest gains, while the Energy (0.6%) and Utilities (1.0%) were the weakest. Large caps (5.1%) outperformed small caps (3.4%) over the month. Australian listed property (6.3%) outperformed global listed property (1.3%).

  The MSCI World Index ex-Australia (hedged into AUD) fell -0.4% over the month. In developed markets, Portugal (6.1%) was the strongest, while Hong Kong (-4.8%) and the UK (-3.3%) underperformed. The MSCI Emerging Markets Index (0.1%) slightly outperformed developed markets (hedged), with China falling (-4.9%) over the month on Coronavirus concerns.

  Driven by the fall in the Australian 10-year yield and falling commodities, the AUD depreciated -4.8% against the USD across the month and ended the month lower against all the major developed market currencies. With the turn in sentiment, safe havens performed well in January, with bond yields down globally, resulting in strong returns from bond markets over the month. The Australian 10-year yield fell sharply in January, down 42bp, the US 10-year yield down by 40bp, and the UK 10-year gilt down by 32bp.

  
  Source: FactSet / JANA

  
  Source: FactSet / JANA

• Market Quarterly Commentary December 2019

  After a sustained period of trade uncertainty, concerns abated over the quarter with a preliminary trade resolution between the US and China announced in mid-December.  Equity markets responded positively to this news with emerging markets the largest beneficiary.

  The US led global markets higher over the quarter, returning 9.1% on the back of the unemployment rate hitting a 50 year low at 3.5%, and the announcement of a ‘Phase One’ trade deal with China.  This agreement targets many of the non-controversial issues currently facing the two states and included tariff relief on $115bn of current Chinese imports, a suspension of future tariffs for Chinese imports, and an agreement for China to buy more agricultural products from the US.  In addition to this positive trade news, October saw the US Federal Reserve cut rates for the third time in 2019 in response to slowing economic growth and continued low inflation.

  The UK equity market was boosted by the reduction in the uncertainty regarding Brexit as a result of the election victory of Boris Johnson’s Conservative Party and the GDP figures for the September quarter, which confirmed the UK economy had avoided entering a technical recession by growing 0.4%.  Similarly, European markets were supported by a resumption in growth in the September quarter, as household consumption growth remain positive, and comments from the new President of the European Central Bank, Christine Lagarde, that she would hold the course of her predecessor by continuing to adopt “highly accommodative” monetary policy positions.

  In Australia, growth to September 2019 remained weak at 1.7% over the year, driven by weak household spending and falling investment in dwellings.  This weakness was partially offset by rising exports (+3.3%), a positive trade balance, and robust public sector spending (+5.2%).  The Reserve Bank of Australia (RBA) cut rates in October, making it the third cut of 2019 and bringing the cash rate to 0.75%.  Despite this, the RBA has played down the likelihood of further rate cuts and maintained they have “no appetite” for quantitative easing.

  The MSCI World Index ex-Australia (hedged into AUD) rose 7.6% over the quarter.  Across developed markets, the US (9.1%) and Japan (8.3%), outperformed the broader developed market, while Australia (0.1%) and the UK (2.3%) were among the weakest performing countries in local currency terms in the MSCI Index.  The MSCI Emerging Markets Index (7.4%) outperformed unhedged developed markets (4.4%).

  The S&P/ASX300 Accumulation Index (0.7%) underperformed hedged overseas equities over the quarter.  Small cap stocks outperformed large cap stocks over the quarter, but finished the calendar year behind returning 21.4% relative to the 24.4% achieved by large caps.

  Australian bonds returned -1.4% over the quarter as a result of rising yields, underperforming hedged international bonds (-0.8%).

  The Australian dollar (AUD) appreciated against most major currencies during the quarter.  Most notably, the AUD appreciated 1.2% against the Euro and 4.2% against the USD, however it did depreciate 1.1% against the New Zealand dollar.

  

  Source: FactSet / JANA

  

  Source: FactSet / JANA

• Market Commentary December 2019

  Beyond the turmoil that could describe 2019, the year ended in favour of the share market bulls as the December month saw most markets continue to rally and bond yields rise. Global developed and emerging markets returned 2.3% and 3.5% respectively. Consistent with the major geopolitical theme of 2019, the terms of a Phase One Trade Deal between the US and China was announced in mid-December, providing a renewed fillip for markets, although many of the more controversial issues have been left for future talks. Emerging markets benefited from the easing trade tensions, posting strong gains in December, particularly China, South Korea and Taiwan. Markets also took confidence from the UK election as the Conservative Party retained power with a large majority.

  The US market outperformed the broader developed markets as key forward-looking economic measures stabilised and jobs data remained strong. Unemployment fell to 3.5%, the lowest figure since 1969. The agreed terms for a ‘Phase One’ trade deal between the US and China suspended additional planned US tariffs on some Chinese goods and cut in half a 15% US tariff on $US120bn worth of Chinese imports. The agreement also boosts Chinese purchases of American “wheat, corn and other farm products based on the rules of the World Trade Organisation” by a touted US$50bn quota. Supported by the trade deal and US dollar weakness, the broader Asian market delivered a strong return over the month of December.

  In the UK, the election outcome presented a mixed response. Concerns arose around the lack of an extension for the transition period for Brexit beyond the end of 2020, which Prime Minister Johnson is seeking to write into law. Conversely, the Utility sector in the UK rallied as the threat of nationalisation for some companies was eliminated with the Conservative victory. In Europe, Christine Lagarde signaled continuity with her predecessor, confirming that monetary policy would remain “highly accommodative” for a “prolonged” period of time. The new European Central Bank (ECB) President also communicated a major one-year strategy review will commence in the course of January, the first since 2003.
  The Reserve Bank of Australia (RBA) left the cash rate unchanged at its December board meeting, noting the “easing of monetary policy” over 2019 in its accompanying statement. The Mid-Year Economic and Fiscal Outlook 2019-20 (MYEFO) confirmed the Federal Budget “remains on track to return to surplus in 2019-20”. Treasury downgraded its outlook for the underlying cash balance by a cumulative A$22bn from 2019/20 out to 2022/23, or by 0.2% of GDP per year on average.

  The Australian equity market returned -2.0% in December, underperforming both global and emerging markets, which returned 2.3% and 3.5% respectively. Two factors impeded the performance of the Australian market in December – a sharp increase in the Australian 10-year bond yield, and a strengthening of the AUD across the month. Emerging markets markedly outpaced developed markets, notably Argentina (+13.2%), Korea (+8.1%), and China (+7.9%) posted very strong gains.

  Spurred by the rise in the Australian 10-year yield and rallying commodities, the AUD gained 3.9% against the USD across the month. The currency ended the month higher against all the major developed market currencies, with the exception of the NZD (-1.1%). The Australian 10-year yield climbed sharply in December, increasing 34bp, the largest rise since November 2016. The US 10-year yield rose by 14bp, and the UK 10-year gilt increased by 12bp. The increase in bond yields resulted in negative returns from bonds over the month.

  

  Source: FactSet / JANA

  

  Source: FactSet / JANA

• Market Commentary November 2019

  Consistent with the theme throughout most of 2019, November saw equity markets continue to rally despite continued geopolitical uncertainty. Major central banks (US, UK, Eurozone, Japan) were quiet over the month, in contrast to central bank easing dominating headlines throughout 2019, with only the Bank of England holding a meeting that confirmed no changes to its policy rate. With regards to the ongoing US/Chinese trade dispute, Chinese officials confirmed in late November that both sides were close to reaching a consensus on resolving the outstanding issues. In the UK, the upcoming general election on 12 December continues to dominate headlines. Late November opinion polls indicate that UK Prime Minister Boris Johnson's Conservative Party maintains a comfortable lead over the opposition Labour Party.

  Despite a negative response from the Chinese Foreign Ministry to President Trump’s support of protests in Hong Kong, US equities rose over the month of November, driven by a positive narrative around the finalising of a trade deal. Optimistic investor sentiment was buoyed by broadly positive economic data that confirmed the US economy expanded by 2.1% (annualised) over the third quarter, with over 70% of reporting companies beating guidance. In the UK, domestically-focused areas of the market performed strongly with the sterling extending its recent recovery as GDP figures confirmed the UK economy had avoided entering a technical recession. If the Conservative Party’s comfortable lead translates into votes, they are expected to return as the next government with a majority seemingly allowing the withdrawal agreement to be pushed through parliament, and for the UK to leave the European Union by the end of January 2020. Elsewhere in Europe, Christine Lagarde took over as president of the European Central Bank in early November. Eurozone equities responded positively to this news alongside improving economic data.

  Domestically, the Reserve Bank of Australia (RBA) kept rates on hold at 0.75% with an easing bias. Expectations of unconventional policy appear to be rising, however RBA Governor Lowe insisted the RBA maintains ‘’no appetite’’ for quantitative easing. Weak sentiment saw consumers use the government tax refund to help pay down their debts according to the latest Commonwealth Bank quarterly update, with a similar tone reflected in disappointing retail sales volumes which fell 0.1% during the September quarter. Despite poorer consumer and business sentiment, property markets continue to strengthen following the series of recent rate cuts.

  The Australian equity market returned a modest 3.2% in November, with the IT (10.6%) and Healthcare (8.8%) sectors posting the largest gains, while the Financials sector (-2.0%) was the laggard for month. Mid cap stocks returned 4.1%, outperforming large caps (3.3%) and small caps (1.6%) over the month. Australian Property Trusts (2.3%) outperformed Global Property Trusts (-0.9%) for the month.

  The MSCI World ex-Australia Index (hedged into AUD) rose 3.2% over the month. In developed markets, New Zealand (9.4%) and Ireland (7.1%) outperformed the broader market, while Hong Kong (-1.6%) was unsurprisingly the poorest performer given ongoing social and political turmoil. The MSCI Emerging Markets Index returned 1.7% for the month despite a number of countries sensitive to the US dollar strength lagging the broader market, most notably Chile (-3.7%) with the ongoing civil unrest related to economic and political reforms, and Columbia (-1.1%) where anti-government protests continue. Pakistan (11.0%) registered strong returns for November as banking stocks led the market higher, whilst Turkey (7.6%) also rebounded posting strong returns.

  The Australian Dollar finished the month lower against all the major developed market currencies, most notably the NZD (-1.9%), USD (-1.8%) and the Pound Sterling (-1.8%). Bond markets reflected the better sentiment as government bond yields rose (i.e. prices fell) and corporate bonds outperformed in November. A strong “risk-on” tone early in the month pushed the US 10-year yield up 9 basis points, finishing the month at 1.78%. The Australian 10-year yield fell 11 basis points to 1.03%, and the UK 10-year gilt yield rose to finish at 0.70%.

  

  

  Source: FactSet / JANA

• Market Commentary October 2019

  Geopolitical tensions appeared to ease during October for the big players, with a partial trade deal between the US and China tabled and a no deal-Brexit avoided after the deadline was extended to January 2020. Subsequently, a UK general election was announced for 17 December.  Additionally, central banks retained their dovish stance, with the US Federal Reserve further reducing it policy rate.  Detracting from the positive sentiment was the Turkish invasion of Northern Syria, following President Trump’s announcement of the withdrawal of US troops from Syria.  Additionally, anti-government/pro-democracy protests continued in Hong Kong, whilst instances of civil unrest flared in Chile, Spain, Ecuador, Lebanon and Iraq.

  Trade talks swung to positive in October with a mini-deal formed, but not sealed, between the US and China.  This phase one agreement would see China increase it purchases of US agricultural products and accelerate the openness and transparency of its financial market and in return the US would refrain from further tariffs.   Third quarter US economic data was less favourable, showing a slowing economy, particularly within the manufacturing sector as evidenced by a contraction in PMI. Despite the seemingly resilient consumer confidence indicators falling over the month, the US economy is experiencing an annualised growth rate of 1.9%. In response to the slowing momentum, the US Federal Reserve cut interest rates for the third time this year, to a range of 1.5% to 1.75%.  The Fed indicated further cuts would be unlikely unless economic indicators deteriorated.  In comparison at the end of Q3, China’s growth slowed to 6% (annualised), while the Eurozone narrowly avoided recession.

  In Australia, the Reserve Bank of Australia (RBA) cut the official cash rate by 25bps to 0.75%, although they did note that the positive job growth data reduces the need for further rates cuts.  Business sentiment remains below historic averages and consumer sentiment fell during October, the highlight within the survey was positive housing related consumer sentiment on rising dwelling prices and increasing finance approvals.

  The Australian equity market declined 0.4% in October, with the IT (-3.2%) and Financials (-2.9%) sectors being the biggest detractors, while the Health Care (7.3%) and Industrials sector (2.9%) posted the largest gains.  Large caps (-0.4%) slightly outperformed small caps (-0.5%) over the month. Australian Property Trusts (1.4%) underperformed Global Property Trusts (1.8%) for the month.

  The MSCI World ex-Australia Index (hedged into AUD) rose 1.9% over the month. In developed markets, Sweden (4.9%) and Japan (4.9%) outperformed the broader market, while Belgium (-7.1%) and the Finland (-2.4%) underperformed. The MSCI Emerging Markets Index (2.0%) outperformed developed markets (hedged and unhedged), supported by positive US-China trade sentiment, central bank easing and a lower USD.

  The Australian Dollar finished higher against most of the major developed market currencies over the month, except against the Sterling (-2.7%) which rallied as the risk of a no-deal Brexit diminished and the Euro (-0.2%). The bond market posted negative returns in October with yields rising in most developed markets, with the exception of the US. The US 10-year treasury yield ended the month at 1.69%, the Australian 10-year yield at 1.15% and the UK 10-year gilt at 0.62%.

  

  Source: FactSet/JANA

  

  Source: FactSet/JANA

• Market Commentary September 2019

  Uncertainty, particularly with regards to trade, was front of mind for investors in September. Against this backdrop, equity markets rebounded from weakness in August, as central banks continued to favour loose monetary policies amid fears of a slowdown in global growth.

  Trade talks continued to affect markets in September with markets oscillating in response to a range of positive and negative developments. September started with the US implementing a fresh round of tariffs (US$125Bn) on a range of items including footwear and consumer discretionary products, with China subsequently implementing a further US$75Bn of their own tariffs in retaliation. Adding to the concern, reports surfaced that the US government would consider escalating trade tensions by delisting Chinese companies from US stock exchanges. On a more positive note, markets ended September with some renewed optimism after China’s Ministry of Commerce announced that high-level talks would commence again in October. The US also experienced mixed news domestically with stronger than expected retail sales alleviating recession fears, while a formal impeachment inquiry into President Trump was another factor for investors to worry about. The US Federal Reserve cut interest rates in September as economic growth continued to slow, albeit from high levels.

  The European Central Bank (ECB) also delivered accommodative monetary policy in September with quantitative easing resumed and Euro deposits lowered a further 10bp to -0.5%. Markets generally responded positively to further stimulus with European markets outperforming the broader market index over the month. Elsewhere in the Europe, the UK’s imminent departure from the European Union faced further setbacks. Boris Johnson’s desire to push ahead with Brexit by the end of October hit a roadblock as British parliament voted to block the UK from leaving the EU without a deal.

  In Australia, the Reserve Bank of Australia (RBA) left the official cash rate on hold at 1.0%, with the bank citing low wages and lower house prices. Housing prices look to have stabilised, rising for the fourth consecutive month as interest rate cuts in June and July appear to be taking affect. The Australian equity market ended September 1.9% higher, with Energy (+4.5%) and Financials (+4.3%) posting the largest gains, while Communication Services (-2.8%) and Health Care (-2.2%) were the biggest detractors. Small caps rose 2.6%, outperforming large caps which returned 1.8%. Australian Property Trusts (-2.7%) underperformed Global Property Trusts (2.7%) for the month.

  The MSCI World Index ex-Australia (hedged into AUD) rose 2.3% over the month. In developed markets, Germany (3.5%) and Japan (6.1%) outperformed the broader market, while Hong Kong (-0.6%) and the US (1.8%) underperformed. The MSCI Emerging Markets Index (1.8%) underperformed unhedged developed markets.

  The Australian Dollar edged higher against most of the major developed market currencies over the month, except against the Sterling (-1.1%). The bond market posted negative returns in September with yields rebounding from record lows.  The US 10-year ended the month at 1.68%, the Australian 10-year at 0.96% and the UK 10-year at 0.46%.

  

  Source: FactSet / JANA

  

  Source: FactSet / JANA
• Market Commentary August 2019

  August was a volatile month for financial markets, with the headlines once again driven by trade tensions and increasingly by the risk of an economic downturn.

  The tone of the month was set on the first day when President Trump announced a plan to impose 10% tariffs on all remaining US$300bn worth of Chinese imports, which was contradictory to the more positive tone from both parties after the G20 summit earlier in the year. China retaliated by announcing it would also increase tariffs on US$75bn of US imports, including agriculture, oil and cars, and consequently, Trump announced a further 5% increase on all existing and planned tariff rates. Market sentiment was further dampened by the US labelling China a ‘currency manipulator’ after the PBoC let its currency break through USD/CNY 7.0 and fall to its lowest level in 11 years. US economic data showed that even the US was not immune to global tensions, registering the weakest manufacturing PMI (49.9) since September 2009, as well as a fall in consumer confidence.

  Further, the markets experienced a brief inversion of the 2year/10year US and UK yield curves for the first time since the GFC, perceived by many as the recession predictor. Investors searched for ‘safe-haven’ assets and opted for bonds and precious metals, such as gold and silver. For the first time, all German Government bonds had a negative yield.

  The escalation in trade tensions and general market unrest triggered profit taking in global equity markets, which fell in August. The energy sector led the market lower driven by falling oil prices on growing concerns that US-China tensions would weaken demand for crude oil. The UK and European markets also fell sharply on the back of global developments but also on increased fears of a no-deal Brexit as new prime minister Boris Johnson brought in a tougher negotiating stance.

  The MSCI World ex-Australia Index (hedged into AUD) returned -2.0% for the month. Emerging markets were negatively impacted by a strong US dollar and underperformed developed markets (-2.7%). Argentina experienced major turbulence in August with its equity market dropping by over 50% after the national primary election outcome which suggested the current government could lose power in October, raising concerns over a potential sovereign default.
  Over the past year central banks and policy makers around the global have become increasingly dovish (i.e. looking to provide more support) and this trend continued in August. After the US Fed cut rates at the end of July, Chairman Powell pledged to “act as appropriate” to support the economy during his speech at Jackson Hole, suggesting further stimulus is likely. German Finance Minister Scholz put a number on possible fiscal stimulus for the first time, suggesting EUR$50bn of extra spending. Domestically, the RBA left the cash rate unchanged at 1.0% at its meeting in August.

  Australian economic readings continued to be mixed, with softer than expected construction data, sluggish business investment and falling private capex. On the upside, the labour market continues to be robust. The Australian equity market ended August 2.3% lower, with Materials (-7.3%) and Energy (-5.6%) posting the largest losses, on the back of sharply falling iron ore (-24.3%) and oil prices. Small caps fell 3.9%, underperforming large caps. Australian Property Trusts (1.3%) underperformed Global Property Trusts (2.0%) for the month.

  The Australian Dollar fell against the major developed market currencies over the month, depreciating against the Japanese Yen (-4.4%), USD (-2.2%), Sterling (-1.7%) and Euro (-1.2%). The moves in the Australian dollar were just enough to offset the fall in global equities, with unhedged global equites delivering 0.3%.

  The bond market posted strong returns with yields in many countries reaching record lows in August. The US 10-year ended the month at 1.50%, the Australian 10-year at 0.89% and the UK 10-year at 0.46%. Over the last year, the Australian and global bond markets returned 11.2% and 10.0% respectively, with most of the performance coming from capital gains as bond yields fell.

  

  

  Source: FactSet / JANA

• Market Commentary July 2019

  After a strong start to 2019, financial markets delivered a more muted month in July as most asset classes recorded modest positive returns. Developed market equities were slightly higher, while bonds continued to benefit from a further drop in yields. In terms of market action, most occurred later in the month with the UK confirming Boris Johnson as the new Prime Minster and the US Federal Reserve (Fed) announcing a change in policy rate on the last day of the month.

  The cut by the Fed, the first in 11 years, was made on the back of mounting concerns about the global economy and trade disputes. The benchmark rate was cut by 0.25 of a percentage point to a range of 2% to 2.25%, leaving investors curious as to whether there would be follow-up reductions despite Fed chairman Jerome Powell insisting that the cut would not be a signal of the start of a ‘’lengthy cutting cycle’’. Across the Atlantic, Boris Johnson won the Conservative party leadership contest with roughly two-thirds of the vote to succeed Theresa May, becoming the 77^th Prime Minister of the UK. The British pound came under immediate pressure, reacting to Johnson’s Brexit stance and the potential for the UK to leave the European Union without a deal.

  Despite the US economy appearing to remain on a path of slowing growth, the S&P 500 Index returned 1.4%, driven by roughly three-quarters of companies that had reported earnings by the end of July exceeding analyst estimates. Tech stocks led developed market equities in the US and Europe, while the easing of US restrictions on Chinese telecom company Huawei also boosted sentiment across the Asian region. Energy and Materials were the poorest performers sector during the month.

  The MSCI World ex-Australia Index (hedged into AUD) returned 1.2% for the month. Belgium was the standout for the month returning 8.5%, along with solid returns from New Zealand (5.8%), Netherlands (3.0%) and the UK (2.1%). Within emerging markets, Turkey (7.1%) and Hungary (3.4%) were the standouts, with some of the major markets, namely India (-5.6%), Mexico (-5.0%) and Korea (-3.9%), delivering poor performance.

  Domestically, the Australian equity market continued its streak of positive performance, with the ASX pushing past pre-GFC highs late in the month. As RBA governor Philip Lowe signaled in June, the RBA cut the cash rate by 25 basis points to 1.0% in July, which marked the first back-to-back cuts since mid-2012. However, there was a softer tone to economic data released over the month with retail sales, private sector credit and employment all reporting weaker than expected and business confidence and consumer sentiment also falling despite the RBA rate cut.

  The S&P/ASX 300 Accumulation Index (3.0%) outperformed hedged overseas equities (1.2%) over the month. Mid and small cap stocks outperformed large cap stocks, led by the S&P/ASX MidCap 50 Accumulation Index returning 4.9% for the month. All equity sectors delivered positive returns for the month, led by Consumer Staples delivering a 9.6% return.  Australian Property Trusts (2.6%) outperformed Global Property Trusts (1.1%) for the month.

  The Australian Dollar recorded mixed results against the major developed market currencies over the month, depreciating against the USD (-1.8%) and the Japanese Yen (-1.0%) and appreciating against the Euro (0.5%). The most significant move was against the Pound (2.1%), as markets reacted to the Boris Johnson appointment. In aggregate, the moves in the Australian dollar saw unhedged global equities (2.3%) outperform hedged global equities (1.2%).

  Bonds enjoyed a positive month in July, as yields again fell on the back of the continuously accommodative central bank tone. The Australian 10-year bond yield hit another record low and ended the month at 1.2%. Abroad, the US 10-year yield finished the month unchanged at 2.0%, following the significant drop year-to-date. As a result of these moves, Australian bonds returned 0.9% over the month, marginally outperforming hedged international bonds (0.7%). Corporate bond markets outperformed treasuries as credit spreads also continued to tighten over the month.

  

  

  Source: FactSet / JANA

• Market Financial Year Commentary June 2019

  Monetary Policy and Geopolitical Tensions

  The financial year started strongly, as most equity markets posted positive September 2018 quarter returns, primarily driven by continued robust economic growth emanating from the US.  This was despite growing US-China trade tensions, with the Trump Administration’s 10% tariff on a further US$200bn worth of Chinese imports coming into effect at the end of the September 2018.  China’s Finance Ministry announced retaliatory tariffs on $60bn of US imports, ranging from liquefied natural gas, to agricultural and energy products. Meanwhile the sustained economic strength in the US provided sufficient support for the Federal Reserve (Fed) to raise rates for a third time in 2018, as it moved closer to normalising its monetary policy.

  However, the positive sentiment receded in the December 2018 quarter, with markets experiencing sharp declines, particularly over the month of December. This was largely attributable to market concerns over rising US interest rates, potentially unnecessarily slowing growth, and global trade tensions. This risk-off sentiment was also reflected in lower bond yields, as investors sought defensive assets.

  Following the weak December quarter, global risk asset rebounded strongly in the first quarter of 2019, with the turnaround largely due to the Fed reversing its policy bias in favour of a more accommodative (i.e. dovish) monetary policy, which was complemented by similar moves by other central banks. Elsewhere, uncertainty surrounding Brexit remained a heightened risk, however, the delay of Brexit beyond March to October 2019 provided some respite for the UK equity market. Volatility returned briefly in May 2019 as the US increased the tariff rate from 10% to 25% and China retaliated by increasing from 5-10% to 5-25%. However, markets reacted favourably in late June to news out of the G20 Summit that trade talks were set to resume after a six-week stalemate.

  In Australia, economic growth slowed further to a meagre 1.8% in the year through to March 2019; the slowest growth recorded since the GFC. Amid the softening economic conditions, the Reserve Bank of Australia (RBA) ended a 34-month pause to cut the official cash rate by 0.25% to a historic low of 1.25% in June 2019. This was done in a bid to combat weakening employment, wages and inflation. RBA governor Philip Lowe also signalled that the door would be open to further rate cuts if needed, which the RBA acted on in early July, further cutting the cash rate to 1.00%.

  Global equities

  Global equities, as represented by the MSCI World ex-Australia Index, rose 6.8% on a hedged basis (in AUD). Unhedged returns were greater (12.6%) due to a depreciation in the Australian dollar over the year.  Emerging markets underperformed developed markets, with the MSCI Emerging Markets Index rising 7.0% (unhedged) for the year.

  Australian equities

  The S&P/ASX300 Index rose 11.4% over the financial year, with a significant recovery in 2019, boosted by the surprise Coalition victory in May, which more than offset the volatility during December 2018 quarter in which the Australian market fell -8.4%. The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry began in March 2018, with the final report released in February 2019.  Negative sentiment weighted on financials, particularly big banks, throughout this period. However, banks experienced a relief rally in the wake of the final report which was light on specific recommendations for the banks' core business structures. Overall the S&P/ASX300 Financials rose 8.2% over the year, underperforming the broader market.

  There were pronounced differences in industry sector performance over the year. The Telecommunication sector, composed mostly of Telstra, rose 39.0%.  In contrast, Energy (-6.1%) was the worst performing sector, as oil prices fell over the course of the year

  Property

  In the Property sector, listed Australian Real Estate Investment Trusts (AREITs) rose 19.4% over the year. Australian unlisted property underperformed the listed sector to generate a 6.8% return over the financial year.

  Fixed Interest

  In contrast to last year, bond markets performed relatively strongly as yields reversed course and begun trending downwards, particularly over the latter half of the year. Australian bonds (9.6%) outperformed Global (7.2%, hedged), due to comparatively greater yield decreases in Australia. Over the year, Australian 10-year bond yields decreased from 2.64% to 1.32%, compared to US 10 years which fell from 2.85% to 2.00%. Notably, the spread between US and Australian 10-year bonds remained negative and widened further over the year.

  

  

  Source: FactSet / JANA

• Market Quarterly Commentary June 2019

  Monetary policy and geopolitical tension remained key watchpoints and market drivers over the second quarter of 2019.  Risk assets ultimately reaped the benefits of renewed optimism surrounding more accommodative (i.e. dovish) monetary policy, while interest rate sensitive defensive assets, such as bonds, were also able to benefit from the meaningful fall in yields as markets priced in expected rate cuts.

  Following the strong first quarter of 2019, equity markets continued to rally in the month of April, buoyed by then 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. However, in May geopolitical risk rose again. Global markets fell across all major regions driven by deteriorating trade talks and ongoing concerns around global growth. Specifically, the US-China trade negotiations broke down as the US government increased the tariff rate on $200 billion of Chinese imports from 10% to 25%. China responded by increasing the tariff range from 5-10% to 5-25% on $60 billion of imports from the US.

  Markets then reversed in June as central banks confronted by weaker economic data, risks to trade, and persistently low inflation, indicated the prospect of more accommodative monetary policy.  This alleviated investor concerns of a weakening global economy and fuelled a rebound across all major asset classes. US-China trade talks also progressed and contributed to the positive outcome. Markets reacted favorably in late June to news out of the G20 Summit that trade talks were set to resume after a six-week stalemate.

  Domestically, economic growth slowed further to a meagre 1.8% in the year through to March 2019; the slowest growth recorded since the GFC. Amid the softening economic conditions, the Reserve Bank of Australia (RBA) ended a 34-month pause to cut the official cash rate by 0.25% to a historic low of 1.25% in June. This was done in a bid to combat weakening employment, wages and inflation. RBA governor Philip Lowe also signalled that the door would be open to further rate cuts if needed, which the RBA acted on in early July, further cutting the cash rate to 1.00%.

  The MSCI World ex-Australia Index (hedged into AUD) returned 3.6% over the quarter as developed markets rebounded from a weak May and outperformed emerging markets. Across developed markets the best performing were Greece (14.8%) and Singapore (6.8%), while Japan (-1.6%) and Finland (-0.5%) both underperformed the broader index. Within emerging markets, Argentina (31.8%) outperformed, while Pakistan (-9.8%) lagged.

  The Australian market outperformed aggregate global markets, with the S&P/ASX 300 returning 8.0% over the quarter as investors responded positively to the surprise Coalition victory in May. Small cap stocks underperformed large cap stocks, with the ASX Small Ordinaries Accumulation Index returning 3.7% and the S&P/ASX 50 Accumulation Index returning 9.2%. Global listed property (-0.2%) underperformed Australian listed property (4.1%).

  Australian bonds returned 3.1% over the second quarter, outperforming hedged international bonds (2.7%).  The Australian dollar (AUD) depreciated against the against the USD (-1.2%), the Euro (-2.6%) and the Japanese Yen (-3.8%), while it appreciated against the Pound (1.1%) and the New Zealand dollar (0.3%).

  

  

  Source: FactSet / JANA