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 Quarterly Commentary March 2021

  Global equities markets were positive over the quarter, with the impact of improving economic data more than counteracting market fears of a rise in inflation and the prospect of central banks raising rates earlier than they have indicated.  This sentiment drove government bond yields higher and bond markets experienced negative returns during the quarter.  More broadly, vaccine availability has driven a divergence between countries in their control over the pandemic.  Europe and Japan have suffered from increasing ‘third wave’ infections leading to further lockdowns, while in the US and UK the vaccine rollout has largely been successful in vaccinating millions and infection rates in those countries have been on a steady decline.

  In the US, the S&P 500 Index gained 6.1% in the March quarter.  At the beginning of the quarter the US equity market declined, with the Federal Reserve warning that the pace of the US economic recovery had weakened.  But as COVID-19 infections continued to trend lower and the vaccine rollout accelerated, fears of a weaking economy were replaced with fears that a rapid recovery would lead to inflation and US Federal Reserve (Fed) policy tightening.  However, worries that higher inflation would trigger the Fed to raise interest rates sooner than expected were pushed back when Fed Chairman Jay Powell confirmed that interest rates will remain low for a sustained period.

  At its Federal Open Market Committee (FOMC) meeting in March, the Fed left its policy settings unchanged and upgraded its forecasts for economic activity, with the real GDP forecast increased from the December projection of 4.2% to 6.5% for calendar year 2021 and the unemployment rate forecast to drop to 4.5% by the end of the year.  The passing of the US$1.9 trillion stimulus package in March also renewed confidence in continuing fiscal support for the economy and drove equity markets higher.  As part of the package, immediate stimulus payments to households of up to US$1,400 were disbursed towards the end of March.  Employment, retail sales and industrial production are all set to be supported by what has been one of largest stimulus packages in US history.

  Eurozone markets were positive over the quarter, even as increasing infection rates from the more virulent UK strain of COVID-19 spread throughout continental Europe and forced many countries in the region back into lockdown.  Concerns over the supply and distribution of vaccines increased geopolitical tensions, with the European Commission blocking shipments of the AstraZeneca vaccines to non-EU countries, including Australia.  Economic data across the region showed some positive signs such as improvements in the Euro Zone Economic Sentiment Index and a rise in the Eurozone composite Purchasing Managers Index from 47.8 in January to 48.8 in February.  However, this was offset by a continuing weak labour market and sluggish retail sales.

  In the UK, lockdowns were instituted in January to stem the outbreak of the UK strain of the virus and remained in place throughout most of the quarter, with a gradual rollback in March as infection rates and deaths declined.  Despite this, there were signs of economic recovery, with consumer confidence and retail sales picking up.  Additionally, the vaccination campaign continued to progress remarkably well and had reached over 30 million people by the end of March with more than half the adult population vaccinated with at least the first dose.

  The MSCI World Index ex-Australia (hedged into AUD) rose 6.3% over the quarter.  Amongst the developed markets, Sweden (18.3%) and the Netherlands (15.7%) outperformed the broader developed markets, whilst New Zealand (-8.0%) and Portugal (-0.3%) were the weakest performing countries in local currency terms in the MSCI World Index.  The MSCI Emerging Markets Index (3.7%) underperformed unhedged developed markets (6.5%).

  In Australia, unemployment declined from 6.3% in January to 5.8% in February, while the participation rate remained steady at 66.1%.  However, the underemployment rate increased from 8.1% to 8.5%, above pre-pandemic levels of 8.2%.  At the end of March, the $90bn Job Keeper wage subsidy scheme officially ended, which at its peak supported up to 3.6 million jobs.  Estimates modelled by Treasury expect that up to 150,000 jobs could be lost as a result.  However, business conditions improved over the quarter, with a rise in employment levels and increasing profitability.  The growing confidence on improving business conditions drove the National Australia Bank (NAB) Monthly Business Survey index for February to its highest level since 2010.  GDP in the December quarter was stronger than expected at 3.1%, driven by a lift in household consumption.

  The Australian equity market recorded an increase of 4.2% over the quarter, amid wide dispersion in performance across the main sectors.  Information Technology (-10.3%) and Healthcare (-2.1%) were the weakest, while Financials (12.1%) and Telecommunication Services (9.0%) led the market.  Mid Caps (0.7%) and Small Caps (2.1%) underperformed large cap stocks (6.3%) over the quarter.

  The Australian Dollar was mixed over the quarter, appreciating against the Euro (2.8%) and Japanese Yen (5.6%) but depreciating against the US Dollar (-1.3%) and the British Pound (-2.2%).

  Bond markets were negative over the quarter given the sharp rise in yields.  The US and Australian 10-year bond yields ended the quarter at 1.74% and 1.79% respectively.

  

  

• Market Commentary February 2021

  The drop in infections and the rapid vaccination rollout continued to drive markets higher in February. Equity markets closed the month with positive returns, despite a drop towards the end of the month. Increased government spending to combat the economic fallout of the pandemic led to a fear of inflation that unsettled the financial markets by month-end. Nerves over the inflation outlook rattled bond markets, pushing yields sharply higher.

  In the US, new Covid-19 infections continued to trend down and the vaccine rollout accelerated, driving US Equities to record highs. Towards the end of the month, inflation jitters prompted fears that a rapid economic recovery would hasten policy tightening, which shook bond markets before rippling into equities, especially the IT sector. However, worries that higher inflation would trigger the US central bank to raise interest rates sooner-than-expected were pushed back when Federal Reserve Chairman Powell confirmed that interest rates will remain low for longer.

  Eurozone equities gained in February. Economic data across the region showed positive signs as the Eurozone composite PMIs rose to 48.8 (47.8 in January). In Italy, the formation of a new government led by Mario Draghi, the former European Central Bank president, was approved by a large majority in parliament, avoiding the undesirable scenario of snap elections during a pandemic. In the UK, the vaccination campaign continued to progress remarkably well and had reached 20 million people by the end of February. UK equities performed well, reversing some of the underperformance suffered during the global pandemic’s initial stages.

  The MSCI World Index ex-Australia (hedged into AUD) rose 2.7% over February.  In developed markets, Italy (+5.8%) and Spain (+5.3%) outperformed the broader market, while Finland (-1.1%) and Belgium (-1.0%) underperformed.  The MSCI Emerging Markets Index (unhedged) fell by 0.1%, underperforming unhedged developed markets (+1.7%).  Hedged returns were higher than unhedged returns as the AUD appreciated against the USD over the month.

  In Australia, equity markets rose but underperformed the rise in global equities. The Australian earnings season was strong in aggregate but could not offset the rise in yields and broader investors’ worries. The yield on Australian 10-year government bonds rose to 1.88% at month end despite the unchanged stance on easy monetary policy. Rising inflation expectations on the back of stronger commodity prices, a stronger Australian dollar and the large fiscal stimulus package all added to the sell-off in government bonds. Business confidence climbed four points to +16 points in February, levels last seen in 2010.

  The Australian equities market (S&P/ASX 300 Index) rose 1.5% in February, with mixed performance across sectors.  Information Technology (-8.0%) and Utilities (-8.0%) were the key detractors.  The top performing sector was Materials (+7.1%), which was driven by rising commodity prices.  Financials (+5.1%) also outperformed, driven largely by the big four banks which benefitted from higher yields. Large Caps (+2.0%) outperformed both Mid Caps (-1.3%), Small Caps (+1.5%) and the broader index (+1.5%).  Australian REITs (-2.5%) underperformed both the broader equity market and hedged Global REITs (+3.9%).

  The Australian Dollar was mostly positive against the four major currencies over the month, appreciating against the USD (+0.9%), Euro (+1.0%) and JPY (+2.7%) but depreciating against the GBP (-0.9%). Major bond yields rose over the month, with US 10 year-yields rising to 1.46% and Australian 10-year yields finishing the month at 1.88%.

  

  Source: Factset/Jana

  

  Source: Factset/Jana

• Market Commentary January 2021

  Most asset classes were flat to negative across the month of January, with emerging market equities the notable exception. Following a strong start to the month, most equity markets gave back their gains as the month ended. Initially, the global rollout of COVID-19 vaccines and the prospect of further fiscal stimulus from a Democratic controlled Congress boosted market optimism, but significant disruption in the supply of vaccines to the EU and increased volatility arising from a coordinated short-squeeze by retail investors soon tempered sentiment.

  US equity markets declined over January with the Federal Reserve warning that the pace of the US economic recovery had weakened. Despite this news, the US equity sell off towards the end of the month is best explained by abnormal retail investor activity.  As small and heavily shorted stocks rallied, some hedge funds were forced to close out their short positions and sell some of their long positions in order to raise capital, resulting in a modest, technically-driven market sell off.

  Eurozone and UK equity markets also posted negative returns in January. Across the Eurozone, a disruption in vaccine supply to the EU raised serious concerns, whilst political unrest in Italy compounded negative sentiment across the region.  In the UK, the vaccine rollout picked up speed, although prolonged lockdown restrictions led to a decline in economic activity.

  The MSCI World Index ex-Australia (hedged into AUD) (-0.8%) fell over January. In developed markets, Sweden (3.7%) and the Netherlands (3.0%) outperformed the broader market, while Germany (-8.5%) and Italy (-3.2%) underperformed. The MSCI Emerging Markets Index (unhedged) rose by 3.7%, outperforming unhedged developed markets (-0.4%). Unhedged returns were marginally higher than hedged returns as the AUS weakened against the USD over the month.

  In Australia, equity markets outperformed peers as positive economic data boosted returns. December quarter inflation exceeded expectations (+0.9%), whilst employment rose and the unemployment rate fell to 6.6%. Despite largely positive news, business confidence fell due to the Covid-19 related sporadic lockdowns and border restrictions seen across much of the country during December.

  The Australian equities market (S&P/ASX 300 Index) rose 0.3% in January, with mixed performance across sectors. Real Estate (-4.1%) and Industrials (-3.1%) were the key detractors. The top performing sector was Consumer Discretionary (+4.8%), which was driven by strong retail sales from Covid-19 beneficiaries. Financials (+2.3%) also outperformed, driven largely by the big four banks which benefitted from positive global macro news and new loan growth.  Large Caps (0.7%) outperformed both Mid Caps (-1.1%), Small Caps (-0.3%) and the broader index (0.3%). Australian REITs (-4.1%) underperformed both the broader equity market and Global REITs (-0.5%).

  The Australian Dollar was mixed against the four major currencies over the month, depreciating against the USD (-0.6%) and GBP (-1.0%), but rising against the Euro (0.1%) and JPY (0.8%). Major bond yields generally rose over the month, with both the US and Australian 10-year yields finishing the month at 1.09%.

  

  Source: Factset/Jana

  

  Source: Factset/Jana

• Market Quarterly Commentary December 2020

  In the US, the S&P 500 Index gained 12% in the December quarter.  Despite the US experiencing a record number of COVID-19 deaths over this period, positive sentiment was reinforced by the news of a Food and Drug Administration (FDA) approved vaccine.  Also supporting sentiment was the outcome of the US elections, which saw a clear result in the Presidential contest while also appearing to indicate at the time that, based on expectations for the results of subsequent run-off contests in the Senate, that no single party would control all three branches of government.  This led to the equities market experiencing record gains, particularly in the month of November.  In addition, a $900 billion government stimulus package was approved by the US Congress in December, extending many of the measures included within the original Coronavirus Aid, Relief and Economic Security (CARES) Act enacted early in 2020.  Further, the US Federal Reserve announced that it will maintain current levels of quantitative easing to ensure sustained economic recovery.

  While the Euro zone generally struggled to control the spread of COVID-19, European equities experienced strong gains during the quarter, bolstered by the news of vaccine breakthroughs and the EU leadership’s approval of a €1.8 trillion budget package (which includes the previous quarter’s €750 billion coronavirus recovery fund).  However, continually rising infection rates saw many European countries either reintroduce or tighten social and border restrictions.

  Also responding positively to vaccine news, UK equities performed well over the quarter, partially reversing underperformance during the initial stages of the pandemic.  To assist those affected, the UK Government announced an extension of its wages furlough scheme until the end of March 2021.  UK markets also responded well to the Brexit trade deal with the EU in late December, with domestic-focused industries outperforming.

  The MSCI World Index ex-Australia (hedged into AUD) rose 11.8% over the quarter.  Within the developed markets, Austria (41.7%) and Spain (22.5%) outperformed the broader developed markets, whilst Switzerland (4.2%) and New Zealand (3.9%) were the weakest performing countries in local currency terms in the MSCI World Index.  The MSCI Emerging Markets Index (11.3%) outperformed unhedged developed markets (5.8%).

  In Australia, figures showed a 3.3% rise in GDP in the September quarter, showing the improvement in domestic final demand from the easing of COVID-related lockdown restrictions across most of the country.  Despite this improvement in GDP, overall economic activity remains lower than pre-COVID levels, reflected in a -3.8% decline throughout the year.  However, economic momentum continues to trend upward, with ABS figures showing that circa 90,000 jobs were created in November, reducing the headline unemployment rate from 7.0% to 6.8%.

  Equity returns in the domestic market recorded a strong rebound of 13.8% over the quarter, amid wide dispersion in performance across the main sectors.  Utilities (-5.4%) and Healthcare (-1.0%) were the weakest, while Energy (26.1%) and Financials (22.8%) led the market.  Mid Caps (16.9%) and Small Caps (13.8%) outperformed large cap stocks (13.2%) over the quarter.

  The Australian Dollar appreciated against most of the major developed market currencies on the back of stronger investor sentiment.  The currency advanced by 7.7% against the US Dollar and 5.3% relative to the Yen.

  Bond markets also achieved positive returns over the quarter.  The US and Australian 10-year bond yields ended the quarter at 0.92% and 0.97% respectively.

  

  Source: Factset/Jana

  

  Source: Factset/Jana

• Market Commentary December 2020

  The month of December saw positive returns across most asset classes, most notably in equity markets.  This strong performance resulted from several positive political events, including the US Congress delivering another round of fiscal stimulus and the finalisation of post-Brexit trade terms between the UK and EU.  Despite the commencement of COVID-19 vaccinations, case numbers continued to climb rapidly in many countries.  As a result, new restrictions were imposed to curtail the spread of COVID-19 in the UK, Europe and parts of Asia.

  US equity markets made strong gains over the month of December.  Further government stimulus came in the form of a pandemic relief plan that extended many of the measures in the original Coronavirus Aid, Relief and Economic Security (CARES) Act, including renewing direct household payments and further unemployment benefits.  In addition, the US Federal Reserve reinforced that it will maintain quantitative easing (QE) for as long as necessary to ensure sustained economic recovery.  These positive developments outweighed the impact of COVID-19, as the US witnessed a record number of COVID-19 deaths in December.

  The Eurozone and UK equity markets also experienced gains on the back of positive political events.  Firstly, a post-Brexit trade deal has finally been reached between the UK and EU, ending years of political negotiations.  Secondly, EU leaders approved the landmark €1.8 trillion budget package, including the €750 billion recovery fund.  Against this backdrop, rising COVID-19 infections in December saw many European countries further tighten restrictions.

  The MSCI World Index ex-Australia (hedged into AUD) rose 3.5% during December. In developed markets, Austria (10.0%) and Greece (8.1%) outperformed the broader market, while New Zealand      (-2.5%) and Sweden (-0.9%) underperformed.  The MSCI Emerging Markets Index (unhedged) rose by 2.6%, outperforming unhedged developed markets (-0.5%).  Unhedged returns were significantly lower than hedged returns due to the appreciation of the AUD over the month.

  In Australia, concerns about the growing number of COVID-19 cases in Sydney and Melbourne resulted in many states and territories tightening border and social distancing restrictions.  However, positive local economic data released in December indicated rising consumer and business confidence, accelerating real estate prices and robust growth in building approvals.

  The Australian equities market (S&P/ASX 300 Index) rose 1.3% in December, with mixed performance across sectors.  Utilities (-5.4%) and Healthcare (-4.7%) were the key detractors.  The top performing sector was Materials (+8.8%), which was driven by higher commodities prices.  IT (+8.6%) was another strong contributor driven by the price momentum of stocks such as Afterpay and Xero.  Mid Caps (3.4%) and Small Caps (2.8%) outperformed both Large Caps (0.7%) and the broader Index (1.3%). Australian REITs (0.6%) underperformed both the broad equity market and Global REITs (2.6%).

  The Australian Dollar appreciated against the four major currencies over the month, including an increase of 4.7% against the US Dollar.  Movements in major bond yields were mixed over the month, with the US 10-year yield finishing the month at 0.92% and the Australian 10-year yield at 0.97%.

  

  Source: Factset/Jana

  

  Source: Factset/Jana

• Market Commentary November 2020

  The month of November saw positive returns across most asset classes, in what was a very strong ‘risk on’ month, particularly for equity markets. This strong performance was the result of positive news developments regarding three leading Covid-19 vaccine candidates. The positive sentiment was reinforced by the outcome of the US Presidential election. Cases of Covid-19 continued to rise in the USA, accompanied by growing rates of hospitalisations and deaths. Conversely, a number of countries across Europe saw still high but slowing infection rates of Covid-19.

  In the USA, equity markets experienced sizeable gains. Notably, the Dow Jones had its best month since 1987. More broadly, a range of equity market indexes hit historic highs by the end of November. It was typically the more economically sensitive parts of the US market that saw the strongest gains, based on hopes of a normalisation in economic activity. Coupled with the election of Joe Biden as President, the Democratic Party also retained control of the House of Representatives. Due to ‘run-off’ elections for both Senate seats in the state of Georgia to take place in early January, control of the Senate remains unknown. Localised control mechanisms to stop the spread of Covid-19 are increasingly being reimposed in parts of the US, as the number of cases continues to rise. The Federal Reserve voted to maintain short term borrowing rates between 0% and 0.25% and did not announce any new policy initiatives to further stimulate the economy.

  Coupled with reducing case numbers, the Eurozone and UK both saw considerable gains on equity markets, on similar hopes that an end to the Covid-19 induced lockdowns may soon be over.  However, in the near term, the increased level of restrictions across European countries saw the PMI survey results weaken, with services falling further into contraction while manufacturing remained in expansion mode. Similarly, consumer confidence fell in both the Eurozone and the UK, reflecting ongoing uncertainty about employment and the business outlook. The UK Government announced an extension of its wages furlough scheme until the end of March 2021.

  The MSCI World Index ex-Australia (hedged into AUD) rose 11.6% during November.  In developed markets, Italy (23.5%) and Greece (27.3%) outperformed the broader market, while Israel (8.0%) and Switzerland (7.9%) underperformed.  The MSCI Emerging Markets Index (unhedged) rose by 4.1%, underperforming unhedged developed markets (7.5%).

  In Australia, November saw the further relaxing of restrictions in Victoria and the commitment of various governments to reopen borders between states. The release of labour market data for the month of October showed a slight increase in the unemployment rate (7.0%), but with an improvement in the participation rate, the number of employed people and total hours worked.  Business and Consumer confidence also rose over the month, coupled with improving PMI data.

  The Australian equities market (S&P/ASX 300 Index) rose 10.2% in November, with every sector except for Consumer Staples (-0.7%) in positive territory. There were substantial positive results across most sectors, with Energy (28.2%) the primary beneficiary of significant rises in the price of commodities. Financials were also a strong positive contributor (16.1%), along with Communication Services (16.1%).  Small Caps (10.3%) marginally outperformed the broader Index, whilst Mid Caps (6.6%) underperformed. Australian REITs (13.2%) outperformed the broad equity market and also outperformed Global REITs (9.2%).

  The Australian Dollar appreciated against the four major currencies over the month, including an increase of 4.9% against the US Dollar. Movements in major bond yields were mixed over the month, with the US 10-year yield finishing the month at 0.84% and the Australian 10-year yield at 0.90%.

  

   Source: FactSet / JANA

  

  Source: FactSet / JANA

• Market Commentary October 2020

  October was punctuated by two key themes.  The first was the resurgence of COVID-19 in Europe, which led to the announcement of widespread restrictions across several countries.  The second was the lead-up to the Presidential elections in the US, which were held on 3 November.  In response to the uncertainty surrounding these two events, investors who were previously adopting a ‘wait-and-see’ approach reassessed near-term risks and took a more cautious approach, leading to an overall decline in Global Equities of -2.6% (hedged) during the month.

  In the fixed interest markets, the US 10-year yield rose 17 basis points during the month.  However, European yields fell as lockdowns were reimposed and concerns rose about the economic impacts, with the 10-year yield dropping 9 and 8 basis points in Germany and France respectively.  Reflecting this concern regarding the economic outlook, commodities mostly registered negative performance.  Energy was the weakest sector in commodity markets, led by the sharp fall in crude oil prices of -10% to -11% due to threatened demand recovery.  However, Natural Gas (37.3%) rebounded strongly as demand began to rise consistent with the onset of winter in the Northern Hemisphere, which followed a period of lower production and depressed prices during the preceding summer months.

  US shares declined -2.6% as COVID-19 cases continued to increase in most states, compounded by uncertainty surrounding the (at the time, uncertain) election outcome.  Progress on additional fiscal stimulus negotiations also stalled, causing market optimism to decline.  Eurozone shares also registered declines across the board, as several countries reintroduced national lockdown measures in an attempt to contain rising infection rates.  The European Central Bank kept monetary policy unchanged but indicated that additional stimulus measures will likely be announced in December.  In the UK, equities also fell as the government introduced nation-wide restrictions across England.  In addition, the government announced an extended ‘Coronavirus Job Retention Scheme’ (furlough scheme) until December, under which employees will receive 80% of their current salary for hours not worked, up to £2,500 a month.

  Developed markets equities fell over the month, with the MSCI World Index ex-Australia (hedged into AUD) dropping -3.2%.  New Zealand (0.5%) outperformed the broader market, while Germany (-9.7%) and Finland (-7.1%) underperformed.  Conversely, the MSCI Emerging Markets Index (unhedged) rose by 4.2%, outperforming unhedged developed markets (-1.1%) as the prospect of a potential Biden Presidency in the US renewed optimism for more stable trade relations.

  Domestically, a supportive Federal Budget, the easing of COVID-19 restrictions and the gradual re-opening of Victoria saw Australian equities move in a positive direction, with local market sentiment generally more optimistic than in the US, UK and Eurozone.  Earnings revisions rose, narrowing the gap between the Australian and the other developed markets.  However, ABS figures showed that 29,500 jobs were lost during September, slightly increasing the headline unemployment rate from 6.8% to 6.9%.

  The Australian equities market (S&P/ASX 300 Index) gained 1.9% in October, recovering from the previous month’s negative performance.  Industrials (-3.5%) was the primary detractor, followed by Utilities (-1.5%).  IT (8.6%) was the strongest performing sector, due in large part to ‘buy now and pay later’ platform Afterpay’s strong performance during the month.  Mid Caps (6.1%) significantly outperformed both Large Caps (1.3%) and Small Caps (0.5%).  Australian REITs (-0.3%) underperformed the broader equities market, but outperformed Global REITs (-3.3%, on a hedged basis).

  The Australian Dollar depreciated against the major currencies, including the US Dollar and the Japanese Yen, falling -2.0% and -2.9% respectively.  Bond yields were mixed over the month, falling across Europe but generally rising elsewhere.  The US 10-year yield rose 0.17% and the Australian 10-year yield rose 0.04%, while the Chinese 2-year yield rose 0.30%, reversing the fall in September.

  

   Source: FactSet / JANA

  

   Source: FactSet / JANA

• Market Quarterly Commentary September 2020

  Globally, equities and other risk markets continued their rebound over the September quarter as investor sentiment strengthened amidst the gradual reopening in a number of countries and signs that an economic recovery had commenced. However, the rebound stalled and equity markets fell back in September as a resurgence in cases began to appear in parts of Europe. The September quarter is expected to show a year-on-year drop in GDP of close to 5% for many countries compared to a 10-20% drop in the June quarter, with the impacts now largely being focused on services sectors that have been severely disrupted. Significant levels of both fiscal and monetary stimulus have continued to aid global recovery with an estimated $17 trillion of liquidity being pumped into the financial system over the past six months. Global fiscal support by governments has also now totalled over $11 trillion according to the IMF.

  In the US, the S&P 500 Index returned 8.8% for the quarter despite a decline in September as risk appetite slipped. The unemployment rate fell to 8.4%, marking the fourth consecutive decline after the April high of 14.7%. The Manufacturing Purchasing Managers Index (PMI) increased to 53.5 during September, whilst the Services PMI slowed to 54.6, with both indicators remaining strong and reflecting continued economic expansion.  In order to support the recovery, the Federal Reserve left its funds rate target range unchanged at 0-0.25% with no changes expected until 2023. The Fed also announced a shift to average inflation targeting, allowing inflation to remain above target for periods to compensate for periods of below-target inflation. The key implication of this is that rates are expected to remain lower for even longer.

  Growth in China continued to strengthen, with the Manufacturing PMI increasing to 55.9 in September from 55.2 in August, signalling levels of growth not seen since November 2013, with new orders and exports driving the manufacturing sector. Unemployment also continued its downward trend, decreasing to 5.6% in August from 5.7% in July.

  Within the Eurozone, the rate of improvement in economic data slowed over the quarter as infections rose sharply across a number of countries. Business activity stalled, with the flash Purchasing Managers Index (PMI) falling to 50.1 in September, down from 51.9 in August. Eurozone inflation posted its first decline since May 2016, dropping 0.2% year on year, whilst unemployment increased to 8.1%, hitting some of its highest levels since July 2018. As a counterbalance, the European Central Bank (ECB) approved a €750bn fund to help member states recover from the pandemic, including €390bn in loans. Similarly, the UK also began to experience a second outbreak, in turn forcing the reintroduction of certain lockdown measures. Moreover, fiscal stimulus is beginning to fade with the current furlough scheme ending in October.  This is likely to lead to a substantial increase in unemployment.

  The MSCI World Index ex-Australia (hedged into AUD) rose 6.6% over the quarter. Within the developed markets, Denmark (10.4%) and Sweden (10.1%) outperformed the broader developed market, whilst Austria (-8.8%) and Spain (-7.8%) were the weakest performing countries in local currency terms in the MSCI World Index. The MSCI Emerging Markets Index (5.4%) outperformed unhedged developed markets (3.9%).

  In Australia, figures showed a 7% fall in GDP over the June quarter as lockdown measures forced a large decline in household consumption. However, economic momentum has since been on the uptrend, with ABS figures showing that 111,000 jobs were created in August, pulling the headline unemployment rate down from 7.5% to 6.8%. Whilst Victoria’s stage 4 lockdown led to a significant strain on retail spending and business confidence, activity still saw a notable improvement along with the other areas of Australia.

  Equity returns in the domestic market were flat, with wide dispersion in performance across the main sectors. Energy (-13.5%) and Utilities (-8.2%) were the weakest, while IT (13.0%) and Consumer Discretionary (10.1%) led the market. Small Caps (5.7%) and Mid Caps (5.2%) outperformed large cap stocks (-1.9%) over the quarter.

  The Australian Dollar appreciated against most of the major developed market currencies on the back of stronger investor sentiment. The currency advanced by 4.1% against the US Dollar and 1.8% relative to the Yen.

  Bond markets also achieved positive returns over the quarter. The US 10-year bond yield ended the quarter at 0.68% and the Australian 10-year at 0.79%.

  

   Source: FactSet / JANA

  

  Source: FactSet / JANA

• Market Commentary September 2020

  Most risk assets experienced a negative return over September, giving back a portion of their strong gains made in August.  Emergency government support beginning to roll off in a number of countries, in conjunction with limited signs of a timely and efficacious vaccine, continued to fuel uncertainty for investors globally.  Evidence of a ‘second wave’ of the pandemic across a number of countries, particularly in the Eurozone, have resulted in authorities reinstating social distancing measures in many places, further stunting global economic recovery.

  In the US, the market-leading cohort of ‘growth’ stocks which have been beneficiaries of the social distancing measures and lockdowns, came under pressure, giving up some of their strong gains since the beginning of the pandemic.  More broadly, rising COVID-19 case numbers, the relationship with China and uncertainty around election outcomes continued to drag on confidence within the US market.  On a positive note, the unemployment rate fell to 8.4%, beating market expectations of 9.7%; marking the fourth consecutive decline after the April high of 14.7%.  The Manufacturing Purchasing Managers Index (PMI) increased to 53.5 during September, whilst the Services PMI slowed to 54.6, with both indicators remaining strong and reflecting continued economic expansion.  In order to support the recovery, the Federal Reserve left its funds rate target range unchanged at 0-0.25% with no changes expected until 2023.  Additionally, the Fed also announced a shift to average inflation targeting, allowing inflation to remain above target for periods to compensate for periods of below-target inflation.  The key implication of this is that rates are expected to remain lower for even longer.

  In Europe, a resurgence of COVID-19 cases became apparent, with Spain, Italy and France hit the hardest, further impacting the economic growth of the region.  Eurozone inflation posted its first decline since May 2016, dropping 0.2% year on year, whilst unemployment increased to 8.1%, hitting some of its highest levels since mid-2018.  Similarly, the UK also began to experience a second wave, leading to the reintroduction of certain lockdown measures.  Moreover, fiscal stimulus is beginning to fade with the current furlough scheme ending in October.  This is likely to lead to a substantial rise in unemployment.  To help weather the effect of this, the Bank of England maintained its bank rate at 0.1% and kept the scale of its monthly bond purchasing scheme unchanged.

  Domestically, border restrictions began to ease as a number of states saw a continued absence of cases.  However, strict social restriction measures in Melbourne remained, dampening the national economic recovery.  Low levels of activity within the housing market were sustained as confidence among investors remained weak, although changes to lending regulations were announced later in the month which will support the property market.  Positively, ABS figures showed that 111,000 jobs were created in August, pulling the headline unemployment rate down from 7.5% to 6.8%.

  The Australian equities market (S&P/ASX 300 Index) fell 3.6% in September, with most sectors producing negative returns.  Energy (-10.7%) was again a primary detractor along with Consumer Staples (-6.6%).  Healthcare (+0.8%) was the strongest performing sector as investors rotated into areas of perceived safety during the period of volatility.  Small Caps (-2.8%) and Mid Caps (-3.0%) both outperformed large caps (-3.6%).  Australian REITs (-1.1%) outperformed the broad equity market and also outperformed Global REITs (-2.9%).

  The MSCI World Index ex-Australia (hedged into AUD) dropped 2.9% over the month.  In developed markets, Denmark (3.3%) and Sweden (3.0%) outperformed the broader market, while Israel (-7.9%) and Austria (-7.0%) underperformed. The MSCI Emerging Markets Index (unhedged) rose by 1.6%, outperforming unhedged developed markets (-0.3%).

  The Australian Dollar depreciated significantly against a number of major currencies, including the US Dollar and the Japanese Yen, falling 3.1% and 3.6% respectively.  Most major bond yields decreased due to reduced levels of risk tolerance across the market, with the US 10-year yield finishing the month at 0.68% and the Australian 10-year yield at 0.79%.

  

  Source: FactSet / JANA

  

  Source: FactSet / JANA

• Market Commentary August 2020

  Risk assets continued to rally during August with economic data showing an improvement in global activity, albeit at a moderating pace. Subsequently, the number of COVID-19 cases rose globally, as a second wave forced many policymakers to reverse the gradual easing of social distancing measures and implement targeted precautionary measures. With emergency government support globally beginning to taper off, the economic outlook will largely be dependent on the severity of individual country containment measures and the possible development of a vaccine.

  August closed the second-quarter earnings season, with 84% of companies beating expectations, despite earnings per share (EPS) being down 33% year on year. The timely US manufacturing and services Purchasing Managers Indices (PMI), were 53.1 and 55.0 respectively, keeping pace with the upward expansion from the previous month. Additionally, the Federal Reserve announced a more accommodating shift in their monetary policy strategy by announcing average inflation targeting, which would allow the inflation rate to move above and below the 2% target for periods of time. Also in the US, negotiations stalled in Washington over a new coronavirus relief bill which was due to replace the now expired CARES Act which provided financial support to workers who qualified under the unemployment insurance scheme. The presidential campaign progressed during the month with Democratic nominee Joe Biden formally announcing Kamala Harris as his running mate.

  In Europe, clusters of COVID-19 infections re-emerged in August, particularly in Spain and France, where daily increases were close to levels seen at the height of the crisis in March and April. Hard economic data suggests a muted response to the rising infections, where the seasonally-adjusted unemployment rate increased slightly to 7.8% from 7.7%, while retail sales recovered to their pre-crisis levels after monthly gains of 20.3% and 5.7% in May and June, respectively. The unprecedented levels of monetary and fiscal support announced in July continue to raise equity and bond markets, as they both registered positive flows in August, resulting in the MSCI Europe-ex UK posting a 3.1% gain, whilst European high yield credit posted a gain of 1.4%.

  Domestically, virus concerns continue to persist, as some states are still enforcing border closures, with Melbourne extending strict social restriction measures. The Reserve Bank of Australia announced that it will keep the cash rate and the 3-year yield targets unchanged. Furthermore, the unemployment rate increased to 7.5% with the participation rate rising to 64.7% in August.

  The Australian equity market (S&P/ASX 300 Index) rose 3.0% in August, with Information Technology (15.2%) and Consumer Discretionary (9.7%) being the strongest performing sectors, while Utilities (-4.8%) and Telecommunication Services (-3.8%) were the largest detractors. Small caps (7.2%) and mid caps (6.3%) performed strongly relative to large caps (3.1%) during the month. Australian REITs (7.9%) outperformed Global REITs (2.1%).
  The MSCI World Index ex-Australia (hedged into AUD) rose 6.2% over the month. In developed markets, Japan (7.9%) and Hong Kong (7.9%) outperformed the broader market, while Portugal (-1.1%) and New Zealand (-0.5%) underperformed. The MSCI Emerging Markets Index (unhedged) declined by 0.9% underperforming developed markets (unhedged).

  The Australian Dollar appreciated significantly against the Japanese Yen and US Dollar, rising 3.4% and 3.1% respectively. Most major bond yields increased on the back of rising risk tolerance, with the US 10-year yield finishing the month at 0.7% and the Australian 10-year yield at 1.0%.

  

  Source: FactSet / JANA

  

   Source: FactSet / JANA

• Market Commentary July 2020

  The social distancing measures implemented by many countries to contain COVID-19 infections have had some success in controlling the virus, although pockets of outbreaks around the world continue to emerge. Prospects for a vaccine were boosted by positive early-stage trial results, but a timeline for it being available and manufacturing and distributing it remain unclear. The impact on the global economy from the coronavirus pandemic is large and broad. Governments remain under pressure to provide further fiscal support, with discussions over the extent to which support to households and businesses should be extended.

  In the US, daily new infections began to rise again throughout most of July, with California, Florida, Texas and many southern states in particular seeing a surge in confirmed cases. US GDP for the June quarter fell by an annualised rate of 32.9%, which is the largest contraction on record. However, with the reopening of much of the economy, unemployment reduced from 11.1% to 10.2%, and retail sales have rebounded 27% from their low in April. The annual inflation rate increased to 0.6% in June. The US Congress and the Trump Administration are negotiating a second stimulus package with an extension to unemployment benefits and a second round of stimulus. At its July meeting, the Federal Reserve left interest rates near zero, with Chair Jerome Powell making clear the Board is “not even thinking about thinking about thinking about raising rates.” Powell reiterated the importance of the Fed’s programmes to ensure the economy remains on the path to recovery, stating the programmes will be kept in place until they are “confident that the turmoil from the pandemic and the economic fallout are behind us.”

  The UK and Europe have fared well in managing the virus over recent months, although concerns have risen over an increase in cases more recently as the tourist season regains momentum and restrictions have been lifted. In Europe, GDP fell by 12.1% over the June quarter and the composite Purchasing Managers Indices (PMI), a leading indicator of economic activity, increased to 54.8, well above the low of 13.6 in April.

  The number of new cases across many emerging countries such as Brazil and India continued to rise throughout July. There has also been a large spike in the number of cases in Hong Kong. In addition, Australians have been warned not to travel to Hong Kong after a suspension of our extradition agreement with the Chinese territory. China has made steady progress in restarting activity, while remaining vigilant, along with South Korea, and neither country has seen a significant rise in case numbers. In China, GDP grew 3.2% year on year to June, rebounding from the sharp fall in the previous quarter.

  In Australia, the COVID-19 crisis has weighed heavily on the economy as State borders have been closed, Melbourne was placed under strict restrictions for six weeks, and the rest of the country remained on high alert. As a result, the upward momentum in activity levels stalled in July. The contraction in activity was evident in the latest inflation data, with the Consumer Price Index (CPI) falling 1.9% in the June quarter. Like the US, this was the largest quarterly fall on record.

  The Australian equity market (S&P/ASX 300 Index) rose 0.6% in July, with Materials (5.9%) and Information Technology (4.8%) the strongest performing sectors, while the Energy (-6.3%), Industrials (-3.8%) and Health Care (-3.8%) sectors were the largest detractors. Small caps (1.4%) and mid caps (2.0%) strongly outperformed large caps (0.2%) over the month. Australian REITs (0.6%) underperformed Global REITs (1.3%).

  Fuelled by optimism of the potential for a vaccine as well as some better than expected economic and earnings data, global equity markets continued to rally in July. The MSCI World Index ex-Australia (hedged into AUD) rose 3.3% over the month. In developed markets, the USA (5.9%) and Canada (4.3%) outperformed the broader market, while Austria (-5.9%) and Spain (-4.8%) underperformed. The MSCI Emerging Markets Index (unhedged) returned 4.7% over July, outperforming developed markets (hedged and unhedged). This was supported by China’s strong recovery in industrial activity over recent months, which drove its equity market higher.

  The Australian Dollar appreciated against most of the major developed market currencies over the month, with the exception of the Euro (-1.1%) and Pound Sterling (-1.9%). Rising resources prices and improved PMI data in China has lifted the currencies of its trading partners, including the Australian dollar. Most major bond yields fell during the month, with the US 10-year Treasury yield finishing the month at 0.54% and the Australian 10-year yield at 0.82%. Conversely, the Chinese 10-year yield moved higher as economic data offered positive signs.

  

  Source: FactSet / JANA

  

  Source: FactSet / JANA
• Market Financial Year Commentary June 2020

  Black Swan: COVID-19

  The financial year began reasonably well. The first part of the year saw slowing economic growth and continuing low inflation across regions, with accommodative monetary policy from central banks supporting bond and equity markets, which were generally higher. However, the period was also marked by increased volatility, punctuated by back-and-forth US-China trade tensions.

  The trade tensions temporarily abated with a preliminary “Phase One” trade resolution between the US and China announced in mid-December. Equity markets responded positively to this news, continuing their positive run, with emerging markets the largest beneficiary. This agreement targeted many of the non-controversial issues currently facing the two states and included tariff relief on US$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.

  This positive, risk-on sentiment continued into early 2020. However, from mid-February, attention shifted to the rapid spread of COVID-19 globally, no longer considered a China-only issue. In response, governments around the world hastily implemented varying degrees of general public lockdowns to contain the outbreak, leading to a sharp contraction in economic activity and record falls in global equity markets. Emerging market equities underperformed most developed markets, partly due to the added challenge of a strong US dollar. As investors favoured perceived safety, government bond yields fell as prices rose, with further support provided by central banks cutting interest rates sharply and restarting or expanding quantitative easing (bond buying) programmes.

  However, almost as quickly as they fell, risk markets recovered over the remainder of the financial year, recapturing much of their losses. This was despite the continuing uncertainty of COVID-19 fundamentally impacting numerous businesses, as investors tended to look through shorter-term earnings pressures, with the positive sentiment supported by substantial and enduring fiscal and monetary support.

  In Australia, in line with global monetary policy responses, the Reserve Bank of Australia (RBA) reduced the cash rate twice in March, to end the financial year at a new record low of 0.25%. Fiscally, the Federal Government announced three separate stimulus packages totalling more than $200bn, which were coupled with further State-driven initiatives. Economic data weakened, as the unemployment rate reached 7.1% by the end of June 2020, and GDP contracted by 0.3% in the March quarter with the Treasurer declaring Australia to be in a technical recession based on an expected negative June 2020 quarterly GDP result.

  Global Equities

  Global equities, as represented by the MSCI World Index ex-Australia, saw significant COVID-19 volatility over the latter half of the financial year, but overall rose 1.9% on a hedged basis (in AUD). Unhedged returns were greater (5.8%) due to a depreciation in the Australian dollar relative to most of the major currencies over the year. Emerging markets underperformed developed markets, with the MSCI Emerging Markets Index returning -1.2% (unhedged) for the year. However, the post-March recovery was not broadly based, with a narrow group of predominately technology companies, driving equity markets.

  Australian Equities

  The S&P/ASX300 Index fell -7.6% over the financial year. The Australian market felt the full force of COVID-19 impacts from mid to late February where the S&P/ASX 300 Index fell from record highs above 7,000 in late February to 4,500 in late March. However, in the June quarter, despite the weak economic data, and in-line with global markets, the market recovered part of its fall and returned 16.8% for the quarter, reacting to the policy support and then gradual relaxation of social restrictions.

  There were pronounced differences in industry sector performance over the year. The Energy (-29.4%) sector was the weakest performer, on the back of a sharp falls in crude oil prices. In contrast, Healthcare (27.3%) and Information Technology (19.7%) were the best performing sectors, as they tended to be well insulated, and in certain cases benefited from, COVID-19 related shutdowns.

  Property

  In the Property sector, listed Australian Real Estate Investment Trusts (AREITs) fell -20.7% over the year. Australian unlisted property in stark contrast to the listed sector fell only -2.7% over the financial year. Retail assets underperformed other sectors materially, as social distancing measures had a disproportionate impact on cash flows.

  Fixed Interest

  Akin to last year, bond markets performed relatively strongly, off a historically low yield level. Yields continued their overall downward trend, particularly over the risk-off, COVID-19 period seen in late-February and March 2020. Australian bonds (4.2%) underperformed Global (5.2%, hedged), due to comparatively larger falls in yields (increase in bond prices) in global markets. Over the year, Australian 10-year bond yields decreased from 1.32% to 0.87%, compared to US 10-year Treasury yields which fell from 2.00% to 0.65%. Notably, the historically unusual negative spread between US and Australian 10-year bonds, witnessed over calendar years 2018 and 2019, returned to a positive spread in 2020 amidst the COVID-19 driven volatility.

  

  Source: FactSet / JANA

  

  Source: FactSet / JANA

• Market Quarterly Commentary June 2020

  Following the market correction in February and March, risk markets rebounded strongly in the June quarter. Investor sentiment was spurred by major developed economies signalling their willingness to provide substantial fiscal and monetary support to avoid further economic contraction caused by the health crisis, domestic economic disruption and external demand shocks.

  In the US, the S&P 500 Index returned 20.4% for the quarter, despite the US hitting a record high of 40,000 new COVID-19 cases per day with deaths and hospitalisations being most prevalent in the South and West regions of the country. Unemployment levels reached all-time highs during the quarter, with 20.5m jobs lost during the month of April alone, second to levels seen only during the Great Depression. By the end of June, the unemployment rate was 13.3%, after seeing a slight recovery. The Composite PMI Index, a leading indicator of economic activity, fell to its lowest recorded figure of 27.4 in April and partially recovered to 47.9 in June, highlighting persistent weakness in economic activity. Weakness in the oil market persisted, and West Texas Intermediate oil futures for imminent delivery went negative, as oil storage reached full capacity.

  The Federal Reserve continued its commitment to purchase an unlimited amount of government bonds, whilst including the purchase of investment grade corporate bonds, high yield bonds and bond ETFs. Such policy support in part resulted in US high yield and global investment grade credit rallying by 9.5% and 8.6%, respectively during the quarter.

  The UK Government announced it would gradually reopen more sectors of the economy, as daily COVID-19 infections in the country stabilised later in the quarter. Germany and Italy followed suit, with the latter seeing a material decrease in daily infections compared to the March quarter. The European Central Bank (ECB) continued its quantitative easing (QE) program by conducting a new series of seven additional longer-term refinancing operations aiming to provide liquidity to the region’s financial system, which includes collateral easing measures. By the end of June, the ECB’s QE program was increased to €1.35tn, representing 11.0% of the region’s GDP. The Bank of England also continued its highly accommodative policy stance by issuing bonds with negative interest rates for the first time in history, helping to keep the UK 10- year Gilt yields at around 0.2%.

  The MSCI World Index ex-Australia (hedged into AUD) rose 18.0% over the quarter. Within the developed markets, the US (21.8%) and Germany (24.2%) outperformed the broader developed market, whilst Singapore (7.3%), Spain (7.9%) and UK (8.2%) were the weakest performing countries in local currency terms in the MSCI World Index. The MSCI Emerging Markets Index (5.1%) underperformed unhedged developed markets (6.1%).

  In Australia, economic data showed the economy contracted by 0.3% in the March quarter with the Treasurer declaring Australia to be in a technical recession based on the expected June quarterly GDP result. The unemployment rate reached 7.1% by the end of June. Despite the weak economic data, the broad equity market returned 16.8% for the quarter, reacting to the policy support and the relaxation of social restrictions in June.

  The strong rebound in domestic equities resulted in all sectors generating solid positive returns during the quarter. Health Care (2.9%), Consumer Staples (6.9%) and Utilities (7.3%) were the weakest performing sectors, with the strongest being Information Technology (44.4%) and Consumer Discretionary (30.8%). Overall, mid cap stocks outperformed both large and small cap stocks.

  The Australian Dollar appreciated against most of the major developed market currencies on the back of stronger investor sentiment. The currency advanced by 12.5% against the US Dollar and 12.9% relative to the Pound.
  Bond markets also achieved positive returns over the quarter. The US 10-year bond yield ended the quarter at 0.65%, the Australian 10-year at 0.87% and the Eurozone 10-year at -0.48%.

  

  Source: FactSet / JANA

  

  Source: FactSet / JANA

• Market Commentary June 2020

  The recovery equity rally that began in late March slowed its pace in June. While most asset classes ended the month in solid positive territory, the gains were modest compared to April and May. Fears of a ‘second wave’ of COVID-19 infections from increasing numbers of cases in the US, India and Latin America were offset against some better than expected economic data. Tensions between the US and China continued over the origination of the virus. Additionally, China passed a controversial new security law for Hong Kong which makes it easier to punish protesters and at the same time reduces Hong Kong’s autonomy.

  In the US, states that had previously been less impacted saw cases of COVID-19 surge, most notably Texas, Arizona, Florida and California, prompting some states to postpone or wind back their re-opening plans. This contrasted with falling infection numbers in the American Northeast. Economic data surprised on the upside as the economy reopened.  Unemployment reduced from 13% to 11%, and there were strong rises in pending home sales and car sales. The ISM Manufacturing PMI for the US jumped to 52.6 in June from 43.1 in May, beating expectations. Additionally, the US Federal Reserve extended small business lending support and commenced a corporate bond buying program. However, Federal Reserve Chair Powell tempered optimism by commenting that the recovery path is “extraordinarily uncertain” amid efforts to control the virus.

  The daily number of new coronavirus cases continued to rise globally, in part from a surge in new cases in emerging countries such as Brazil and India. Despite this, economic data released during June continued to show the positive impact of economies reopening around the world, including Chinese business conditions, German and Australian retail sales and Purchasing Managers Indices (PMI) in many countries. The global PMI recorded its largest ever monthly rise in June, albeit from a very low base.

  In Australia, initial market enthusiasm waned late in the month as cases in Victoria began to rise significantly, with new cases rising to levels last seen in April. March quarter GDP data released in June was marginally negative due to the impact of the virus shutdowns that were implemented in late March and earlier bushfires. The May unemployment figure rose to 7.1%, but retail sales rebounded by 16.3% in June and the property market remained resilient.

  The Australian equity market (S&P/ASX 300 Index) rose 2.4% in June, with Consumer Discretionary (5.0%) and Financials (4.3%) the strongest sectors, while the Energy (-2.1%) and Industrials (-1.6%) sectors were the biggest detractors.  Large caps (2.7%) strongly outperformed small caps (-2.2%) over the month.  Australian REITs (-1.2%) underperformed Global REITs (2.3%).

  The MSCI World Index ex-Australia (hedged into AUD) rose 2.3% over the month. In developed markets, Hong Kong (11.0%) and New Zealand (8.2%) outperformed the broader market, while Greece (-3.7%) and the Norway (-2.2%) underperformed. On an unhedged basis, the World Index fell 1.1%, reflecting the rise in the AUD over the month. The MSCI Emerging Markets Index (unhedged) (3.5%) outperformed developed markets (hedged and unhedged), supported by China’s recovery.

  The Australian Dollar finished higher against most of the major developed market currencies over the month, except against the New Zealand Dollar (-0.2%), as the steady global recovery saw a shift away from ‘safe haven’ buying. The bond market posted muted positive returns in June with yields range bound in most developed markets, except for Italy. Chinese yields were up, showing signs of positive sentiment. The US 10-year treasury yield ended the month flat at 0.65%, the Australian 10-year yield at 0.87% (down from 0.88%) and the UK 10-year gilt at 0.15% (down from 0.18%).

  

  Source: FactSet / JANA

  

  Source: FactSet / JANA

• Market Commentary May 2020

  The rebound in risk assets that began in late March extended into May and volatility continued to decline. Markets continue to be dominated by COVID-19 developments and investors have been increasingly shifting their focus to the relaxation of lockdowns and how reopening will affect economies. The more moderate pace of market moves in May relative to the prior month suggests that markets were watchful of how the situation was developing.

  Many countries began some level of reopening, with New Zealand and Australia ranking among the world’s most successful countries in containing the pandemic so far. In the US, many states have also begun to reopen. The S&P500 ended the month 4.7% higher, reversing most of its losses from the March quarter by the end of May and ending the month only 10% below its pre-COVID February peak.

  In contrast, economic data in the US has been particularly weak. The unemployment rate reached 14.7%, the highest level in post-war history, with around 10 million additional claims for unemployment benefits in May. Similarly, the purchasing managers’ indices (PMIs) reported further weakness across both manufacturing and services. US corporate earnings releases for the March quarter reported a contraction by around 14% relative to last year. The expectations for June quarter GDP and earnings growth are considerably worse than the March quarter, given the lockdowns started around the end of March and activity, despite improving, remains very far from full capacity. The US Federal Reserve (Fed) made no meaningful adjustments to policy at its May meeting. The Fed Chair Jerome Powell signaled hesitation to using negative rates due to the expected downside effects on the banking sector.

  Domestically, the Reserve Bank of Australia (RBA) maintained the targets for the cash rate and the yield on 3-year Australian Government bonds of 25 basis points at its May meeting. The April unemployment rate jumped to 6.2% (from 5.2%), the highest since September 2015 but below market expectations of 8.3%. Meanwhile, the Australian Treasury revealed a substantial error in estimating the coverage and cost of the JobKeeper wage subsidy scheme, halving the original coverage estimate of 6.5 million workers and revising the cost of the scheme to $70bn (from $130bn).

  In Europe, attention has centred around the €750bn European Union (EU) recovery fund unveiled by the European Commission. The fund would borrow from the financial markets between 2021 to 2024 to spend mostly on grants and loans to EU countries. This would help countries with already high debt levels to access funding without having to issue more of their own debt. The European Central Bank (ECB) bought over €125bn in government and corporate bonds over the past month, and the ECB’s pandemic purchase programme was subsequently ramped up at its next meeting on 4 June.

  Oil prices recovered significantly in May, with the WTI crude oil price spiking over 88% during the month, marking its best monthly performance on record as an uptick in demand as well as record supply cuts pushed prices higher to around US$35. Despite the recovery, the commodity is still down 42% year to date and far away from its January high of US$66. The surge in oil prices did not translate into performance of Energy stocks, which rose only 0.7% (unhedged in AUD) for the month.

  The MSCI World Index ex-Australia (hedged into AUD) rose by 4.8% over the month.  At the outset, developed markets outperformed emerging markets, with a large dispersion of performance across regions.  In developed markets, Israel (9.6%), Portugal (9.3%), Finland (7.5%), Germany (7.2%) and Japan (6.7%) outperformed the broader market, while Hong Kong (-8.4%) and Singapore (-2.8%) moved lower. In emerging markets (EM), the number of reported COVID-19 cases in some parts of Asia has been trending down, although a large increase in cases in India and Brazil have put pressure on their economies and restricted gains in EM equities. Argentina (19.9%) led performance, far ahead of the next best performer Brazil (8.9%), which performed well despite accelerating COVID-19 infections, supported by the rebound in oil prices. Chile (-8.8%) was the biggest laggard in EM.

  The Australian market followed suit with optimism surrounding global equities, with the S&P/ASX 300 Index ending the month 4.6% higher. The domestic market was led by Information Technology, which gained 14.3%, topping up its strong April gains and breaking through into positive territory for the calendar year to date (CYTD +5.9%) and outperforming the only other positive performer in 2020 to date, Healthcare (CYTD +1.0%), which corrected in May (-5.1%). The correction in Healthcare was driven by Pharmaceutical stocks (-10.1%). Financials were up by 5.3% in May but continue to lag the rest of the market in 2020 to date (CYTD -22.0%), together with Energy (CYTD -32.1%).

  The Australian Dollar (AUD) appreciated against most of the major developed market currencies over the month of May, gaining 3.4% against the Pound, 2.1% against the Yen, and 1.4% against the US Dollar. Australian bonds performed in line with the overseas bond markets, with yields staying relatively rangebound during the month. The US 10-year government bond yield ended the month at 0.65% (from 0.62%), the Australian 10-year at 0.88% (from 0.89%) and the UK 10-year at 0.18% (from 0.23%).

  

  

  Source: FactSet / JANA

• Market Commentary April 2020

  April marked a strong reversal in the negative sentiment from the prior month, as the general public shutdowns/lockdowns around the world, implemented due to COVID-19 in March, began to demonstrate success in slowing the spread of the virus. This drove expectations of an easing in restrictions and increased optimism for an economic recovery. There was also a boost to equity market sentiment from the unprecedented monetary and fiscal stimulus measures announced globally during late March and into April.

  Both developed markets and emerging markets experienced positive returns, with small cap and mid cap equities benefitting most out of the rally. Oil prices continued to fall during April with WTI Crude dropping 8% even as OPEC and Russia negotiated a 20% supply reduction, which cut global production by 9.7M barrels per day. Also, for the first time in history, oil futures for delivery in May briefly fell into negative, as the supply glut and storage capacity constraints meant producers were willing to pay traders to take oil. Monetary policy action also restored some confidence and reduced volatility in the bond markets, with corporate bonds outperforming Government bonds. Investment grade credit posted the strongest bond returns over the month whilst most Government bond yields continued to trend marginally lower. The Australian dollar also rose significantly during the month as more positive sentiment took hold in markets.

  The US equity market continued its recovery from its lows in late March and both the S&P 500 Index (+13%) and Dow Jones Industrial Average (+11%) experienced their largest monthly gains in decades. In stark contrast, US economic data continued to weaken across all measures of economic activity.  The US labour market further deteriorated, with the initial unemployment claims exceeding well over 30 million by the end of the month.  The unemployment rate for April skyrocketed to 14.7%, the worst figure since the Great Depression. The consumer sector and industrial production also posted their largest declines in decades as retail sales slumped 8.7% and manufacturing output dropped 6.3% in March.

  European markets also advanced as some countries began to relax lockdown restrictions towards the end of April or communicated plans to relax restrictions in the coming months. Preliminary data showed that economic growth in the Eurozone contracted by 3.8% quarter-on-quarter for the March quarter, but further falls are expected in the June quarter as most lockdown measures were implemented in late March. Europe saw sharp falls in business activity with the Purchasing Managers Indices (PMI) in April at their lowest recorded levels since the survey began in 1992. Consumer and business sentiment also declined significantly in March. Similarly, in the UK, economic data has been very weak with the PMI at record lows and sharp falls in consumer and business confidence. Towards the end of the month, the UK Prime Minister Boris Johnson returned to work after recovering from COVID-19 and declared that the UK was “past the peak” and the government was planning to ease lockdowns and restart the economy. The MSCI UK Index finished up 3.4% over the month.

  The MSCI World Index ex-Australia (hedged into AUD) rose 10% over the month. In developed markets, Austria (15.3%) and USA (13.2%) outperformed the broader market, while Portugal (1.6%) and Spain (1.7%) lagged significantly. Within emerging markets, South Africa (16.4%) and India (15.3%) outperformed the broader emerging markets Index while Indonesia (2.4%) and Morocco (-2.3%) underperformed.

  Domestically, the Australian market followed the optimism surrounding global equities and ended the month with the S&P/ASX 300 Accumulation Index up 9%. Consistent with other global economies dealing with the impacts of COVID-19, Australia recorded sharp falls in business confidence, the PMI surveys and employment. The RBA held cash rates steady at 0.25% and continued to reaffirm its monetary policy support of the economy during the COVID-19 pandemic. This included the RBA’s bond purchasing program aimed at maintaining bond yields at target levels and liquidity in the market, as well as open market operations to support credit and maintain low funding costs in the economy.

  All domestic equity sector returns were positive in April, with Energy (25.2%), Information Technology (21.8%) and Consumer Discretionary (16.4%) achieving the largest gains during this risk-on environment. The defensive sectors were generally the worst performing, with Consumer Staples (2.6%), Financials (2.9%) and Utilities (3.2%) lagging the broader market Index. Overall, large caps underperformed small and mid-cap stocks over the month.

  The Australian Dollar appreciated against most of the major developed market currencies over the month, increasing 7.0% relative to the US Dollar and 7.2% relative to the Euro. Australian bonds underperformed the overseas bond markets, with yields continuing to fall in a number of major economies while in Australia yields rose. The US 10-year bond yield ended the month at 0.62%, the Australian 10-year at 0.89% and the UK 10-year at 0.23%.

  

  

  Source: FactSet / JANA

• Market Quarterly Commentary March 2020

  Equities and other risk markets started the year well with positive sentiment, including from the signing of a ‘Phase One’ trade deal between the US and China.  However, from mid-February, as the coronavirus COVID-19 spread within and outside of China, governments hastily implemented varying degrees of general public lockdowns to contain the outbreak, leading to a sharp correction in global equity markets.  Emerging market equities underperformed most developed markets, partly due to the added challenge of a strong US dollar.  As investors favoured perceived safety, government bond yields fell as prices rose, with further support provided by central banks cutting interest rates and restarting or expanding quantitative easing (bond buying) programmes.  Commodity prices fell sharply over the quarter, with oil prices declining, as negotiations to extend the supply agreement between OPEC and Russia broke down.

  In the US, strong non-farm payroll data, a better than expected reporting season, and the acquittal of President Trump in his impeachment trial all contributed to equity markets reaching record highs in early February.  As the quarter progressed, the escalation in the number of cases of COVID-19 outside of 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 a sharp decline in US Treasury yields to a record low.  Confirmed COVID-19 cases in the US rose to nearly 200,000 by the end of March, up from 62 cases at the beginning of the month.  The economic impact was dramatic, as initial jobless claims rocketed to over three million in the last week of March, and with more expected.  The response from the Federal Reserve has been extraordinary as it proceeded to cut interest rates twice in March, whilst announcing unlimited quantitative easing in the form of purchasing government bonds as necessary.  Additionally, fiscal stimulus came in the form of the US Congress passing a $2 trillion stimulus package including $250 billion worth of direct payments to households, $500 billion for loans to distressed companies and $350 billion for small business loans.  After recovering some of its losses in late March, the S&P 500 finished down 19.7% (net) in USD terms for the quarter.

  The UK officially exited the EU on 31 January 2020 with the two parties to negotiate a new free trade agreement by the end of 2020.  Consequently, the risk of a ‘hard Brexit’ remains.  UK and European stock markets fell heavily, as Italy and Spain became some of the most severely affected countries of the coronavirus outbreak.  With growth in the Eurozone already fragile, registering an increase in GDP of just 0.1% in the December 2019 quarter, the European Central Bank announced quantitative easing in the form of the Pandemic Purchase Programme, a €750 billion scheme to fund the purchase of government and corporate bonds until the end of the COVID-19 crisis.  Additionally, respective governments announced numerous forms of fiscal policy response, where policies such as that of the German Government, which has committed to pay a significant proportion of workers’ wages during the shutdown to enable companies not to lay off staff, have been encouraging.

  The MSCI World Index ex-Australia (hedged into AUD) fell 20.9% over the month.  In developed markets, New Zealand (-4.8%) and Denmark (-5.8%) held up better against the broader trend, while Austria (-41.6%), Greece (-43.9%) and Spain (-28.1%) were the hardest hit.  Within emerging markets, South American equity markets were some of the worst performers, with Argentina (-39.3%) and Colombia (-37.7%) performing poorly.  The MSCI China Index (-10.3%) outperformed the broader Emerging Markets Index.

  Domestically, the Australian market felt the full force of COVID-19 impacts from mid to late February where the S&P/ASX 300 Index fell from record highs above 7,000 in late February to 4,500 in late March.  The market fell 23.4% over the quarter.  In line with global monetary policy responses, the RBA reduced the cash rate twice in March, to a new record low of 0.25%.  Fiscally, the Federal Government announced three separate stimulus packages totalling more than $200 billion, which were coupled with further State-driven initiatives.

  All domestic equity sectors returns were negative in the March quarter.  Those lagging the broader Index included Real Estate (-34.3%), Consumer Discretionary (-30.0%), Industrials (-28.2%) and Financials (-28.0%), while Energy (-48.2%) was the worst-performing sector, driven by large cap oil stocks.  The best performing sector was Health Care (1.5%), followed by Consumer Staples (-3.7%) and Utilities (-9.6%) which also outperformed the broader market.  Overall, large cap stocks outperformed small and mid-cap stocks over the quarter.

  The Australian Dollar depreciated against most of the major developed market currencies over the quarter, retreating 12.9% relative to the US Dollar and 10.9% relative to the Euro.  Most bond markets posted positive returns over the quarter, as yields fell to record lows in a number of major economies.  The US 10-year bond yield ended the quarter at 0.68%, the Australian 10-year at 0.76% and the UK 10-year at 0.33%.

  

  

  Source: FactSet / JANA

• Market Commentary March 2020

  In light of extraordinary market circumstances in March, economists have now moved on from a debate as to whether there will be a recession this year, to how deep and how long it will be.  Unprecedented economic and societal effects coupled with unprecedented fiscal and monetary responses by policy makers highlighted one of the most eventful months in recent history.  Equities across most developed markets went into freefall throughout the first three weeks of the month as COVID-19 continued to spread, with governments around the world hastily implementing multiple degrees of general public lockdowns in an attempt to contain the outbreak.  Emerging market equities also tumbled, underperforming most developed markets as a strong US dollar proved to be an additional headwind.  As investors favoured perceived safety, government bond yields fell as prices rose, with further support provided by central banks cutting interest rates and restarting or expanding quantitative easing (bond buying) programmes.  Commodity prices fell sharply over the quarter, with oil caught in a perfect storm with an agreement between OPEC and Russia to constrain supply breaking down just as the outlook for demand fell, leading prices to fall substantially.

  As the US equity market tumbled over the first three weeks of the month, confirmed COVID-19 cases rose to nearly 200,000 by the end of March, up from 62 cases at the beginning of the month, with the economic impact equally as significant, with initial jobless claims rocketing to over three million in the last week of March with more pain expected.  The response from the Federal Reserve has been extraordinary as it proceeded to cut interest rates twice in a month for the first time since the GFC as well as announcing unlimited quantitative easing in the form of purchasing unlimited government bonds as necessary.  Additionally, fiscal stimulus came in the form of the US Congress passing a $2 trillion stimulus package including $250 billion worth of direct payments to households, $500 billion for loans to distressed companies and $350 billion for small business loans.  After recovering some of its losses later in the month, the S&P 500 finished down 12.4% (net) in USD terms for the month.

  European markets fell heavily, as Italy and Spain became some of the most severely affected countries of the coronavirus outbreak.  With growth in the Eurozone already fragile, registering a 0.1% increase in growth in the December 2019 quarter, the European Central Bank announced quantitative easing in the form of the Pandemic Purchase Programme, a €750 billion scheme to fund the purchase of government and corporate bonds until the end of the COVID-19 crisis.  Additionally, respective governments announced numerous forms of fiscal policy response, where policies such as that of the German government, which has committed to pay a significant proportion of workers’ wages during the shutdown to enable companies not to lay off staff, have been encouraging.  Similar policy has been adopted in the UK, with the government supporting employment retention as COVID-19 themes dominated previous Brexit narratives throughout the month.  The Bank of England materially reduced interest rates, cutting by 65 basis points to 0.10% as the MSCI UK Index fell 13.4% over the month.

  The MSCI World Index ex-Australia (hedged into AUD) fell 13.4% over the month.  In developed markets, Denmark (-3.4%) and Switzerland (-4.3%) held up against the broader market, while Austria (-31.6%), Greece (-25.9%) and Italy (-22.5%) were the hardest hit.  Within emerging markets, South American equity markets were some of the worst performers, with Colombia (-32.3%) and Argentina (-32.1%) performing very poorly.  The MSCI China Index (-6.7%) outperformed the broader emerging markets Index.

  Domestically, the Australian market felt the full force of COVID-19 impacts throughout the month with the S&P/ASX 300 Accumulation Index falling -20.8%, underperforming global equity markets and suffering the worst single month since October 1987.  In line with global monetary policy responses, the RBA reduced the cash rate twice in March, initially reducing the rate to 0.50% early in the month before an out-of-cycle meeting on the 19 March further reduced the cash rate to a new record low of 0.25%.  Additionally, the RBA announced it would purchase Government and Semi-Government securities across the yield curve to maintain target yield ranges and address market dislocations.  Fiscally, the Federal Government announced three separate stimulus packages totaling more than $200 billion, which were coupled with further State-driven initiatives.

  All domestic equity sector returns were negative in March with those lagging the broader Index including Industrials (-23.0%), Consumer Discretionary (-26.4%), Financials (-27.7%) and Real Estate (-35.1%), with Energy (-37.6%) the worst-performing sector driven by large cap oil stocks.  The best performing sector was Consumer Staples (-3.6%), followed by Health Care (-5.6%) and Utilities (-6.7%) which also outperformed the broader market.  Overall, large caps outperformed small and mid-cap stocks throughout the month.

  The Australian Dollar again depreciated against most of the major developed market currencies over the month, retreating 5.1% relative to the US Dollar and 5.0% relative to the Euro.  Australian bonds outperformed overseas bond markets, with yields falling to record lows in a number of major economies.  The US 10-year bond yield ended the month at 0.68%, the Australian 10-year at 0.76% and the UK 10-year at 0.33%.

  

  

  Source: FactSet / JANA

• 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