Lonsec Market Commentary – January 2019
The S&P/ASX 200 Index returned 3.9% in January as stocks recovered from a global selloff in December. In early February markets were able to digest the recommendations of the Royal Commission report into financial services misconduct, which provided a measured response to the system’s failings. Major financial services shares moved higher, but overall the sector remains beaten down having fallen 14.8% over the course of 2018.
Fears of a ‘breakout’ in interest rates were allayed in January as slower global growth and softer inflation saw a resurgence in bond values and compression of yields.Global bonds measured by the Barclays Global Aggregate Index returned -2.0% in January in Australian dollar unhedged terms and 1.0% in hedged terms.
Confidence in the Australian economy has taken a hit from the correction in house prices and a slowdown in global growth, both of which have led the Reserve Bank to reassess downside risks. Consumer spending has remained relatively robust despite the negative wealth effects of falling property prices, but this has been partly driven by a fall in the savings rate.
(Lonsec January 2019, Issue Date: 09-02-2019)
Lonsec Market Commentary – December 2018
The S&P/ASX 200 Index returned -0.1% through December, rebounding in the first week of January 2019 as Wall Street recovered slightly from a horror end to 2018. The ASX outperformed global shares, holding up well compared to other major markets.
Global bonds measured by the Barclays Global Aggregate Index returned 5.8% in December in Australian dollar unhedged terms and 1.4% in hedged terms as yields in major developed markets fell through December and early January.
The RBA’s December minutes revealed that members were wrongfooted by the September quarter GDP release, which came in lower than expected at 2.8% year-on-year compared to an expected figure of over 3.0%.
Australian house prices fell 4.8% in 2018 according to CoreLogic, driven by sharp falls in the Sydney (-8.9%) and Melbourne (-7.0%) markets. Sydney house prices fell 1.8% in December and 3.9% during the quarter, while the fall across all capital cities was 1.3% and 2.8% respectively. According to the ABS, price falls are now also evident in the middle and lower segments of the market, while auction clearance rates and volumes are trending lower.
(Lonsec December 2018, Issue Date: 09-01-2019)
Lonsec Market Commentary – November 2018
The S&P/ASX 200 Index returned -2.2% through November as Australian shares appeared to miss out on the market bounce experienced in the US and Asia. Following October’s volatility and market drawdown, losses were stemmed in the Information Technology sector (+1.0%), with Wisetech Global (+16.5%) and Afterpay Touch (+15.5%) partially recovering, while employee share plan provider Computershare (-8.2%) was down following the completion of its acquisition of Swiss-based Equatex Group.
Global bonds, measured by the Barclays Global Aggregate Index, returned -2.6% in November in AUD terms and 0.5% in AUD hedged terms. The US 10-year Treasury yield finished November at just under 3.0%, following a high of 3.26% earlier in the month.
The housing market continues to dominate the headlines in Australia. House prices are down 7.8% in Sydney and 5.2% in Melbourne over the past year, and lending to investors and ‘upgraders’ has slumped as banks tighten lending criteria. The RBA sees the correction in house prices and the tightening of lending conditions as a healthy development, reducing financial stability risks and potentially prolonging the cycle.
(Lonsec November 2018, Issue Date: 09-12-2018)
Lonsec Market Commentary – October 2018
The S&P/ASX 200 Index returned -6.1% through October as local markets reacted to selling on Wall Street and growth shares came under pressure. Sectors that have enjoyed a relatively robust earnings trajectory in recent months, such as Health Care (-7.0%) and Information Technology (-11.2%), were hit hard as investors backed away from elevated valuations.
Global bonds, measured by the Barclays Global Aggregate Index, returned 1.0% in October in AUD terms and -0.2% in AUD hedged terms. October was dominated by the sharp rise in US bond yields and the accompanying downturn in global equity markets, with the US 10-year yield pushing to a high of 3.26%, while the S&P 500 suffered a 9.9% drop from its record high in September to its October low.
Despite the risk of a material slowdown in the Chinese economy, evidence of a decline in house prices, and global trade concerns, business conditions remain relatively robust while labour market conditions continue to show signs of underlying strength. The RBA lifted its forecast for economic growth in 2018 and 2019 slightly to 3.5%, with growth then set to slow in 2020 due to reduced exports of raw materials.
(Lonsec October 2018, Issue Date: 09-11-2018)
Lonsec Market Commentary – September 2018
The S&P/ASX 200 Index returned -1.3% in September as the benchmark was dragged down by Financials (-2.2%) and the Health Care sector (-7.7%), including a major dip in pharmaceuticals giant CSL (-11.5%) which is coming off record highs following August’s earnings season.
Global bonds, measured by the Barclays Global Aggregate Index, returned -0.4% in September in AUD hedged terms as yields in both developed and emerging markets pushed higher. The US 10-year Treasury yield rose to a seven-year high in early October, pushing above 3.20% on the back of positive employment data, while markets focused on the potential for higher inflation and the impact of rising interest rates on equity markets.
The Australian economy continues to outpace expectations. For the first half of 2018, Australia’s GDP expanded at an annualised pace of 4.0%, challenging the US economy for the strongest rate of growth in the developed world. Recent growth outcomes are broadly in line with the RBA’s and Treasury’s optimistic projections, while the household sector has maintained solid consumer spending in the face of very subdued wage growth.
(Lonsec September 2018, Issue Date: 09-10-2018)
Lonsec Market Commentary – August 2018
The S&P/ASX 200 Index returned 1.4% in August, with the Telecommunications (+13.1%), Information Technology (+12.9%) and Health Care (+10.7%) sectors among the top gainers. TPG (+50.0%) and Vodafone announced a merger that will provide a major third challenger to Telstra (+9.2%) and Optus, with a combined enterprise value of $15 billion.
The Barclays Global Aggregate Index returned 0.3% in AUD hedged terms, with developed market yields largely holding firm on the back of positive economic data, while yields in some emerging markets fell sharply. The US 10-year Treasury yield held below 3.00% throughout August, falling as low as 2.82% before rising above 2.90% in early September following strong jobs numbers.
Australia’s GDP growth was a stronger-than-expected 0.9% for the June quarter and 3.4% year-on-year—the fastest growth since 2012 during the height of the mining boom. Growth was boosted by a 0.7% rise in consumer spending, despite households struggling with low wage growth and falling house prices.
(Lonsec August 2018, Issue Date: 09-09-2018)
Lonsec Market Commentary – July 2018
The S&P/ASX 200 Index returned 1.4% in July, with gains from the Industrials (+3.5%), Health Care (+2.1%) and Financials (+2.1%) sectors. The Telecommunications sector (+7.9%), which is dominated by Telstra (+8.4%), appeared to recover as attention turned to the much-anticipated 5G spectrum auction, putting a halt to a seven-month slide.
Bond markets were relatively muted through July as central banks left rates on hold and trade-related fears were put to one side as investors focused on earnings and positive economic data.
The RBA is happy to sit on the bench, holding rates at 1.50% at its August meeting. While household debt and sluggish wage growth remain a concern, the business sector is enjoying favourable conditions, especially in the manufacturing, construction and business services industries.
(Lonsec July 2018, Issue Date: 09-08-2018)
Lonsec Market Commentary – June 2018
The S&P/ASX 200 Accumulation Index rose 3.3% in June, led by the Energy (+7.8%) and IT (+6.3%) sectors. A late rally in oil prices saw oil refiner Caltex (+10.6%) gain, solidified by the announcement of a long-term wholesale food supply agreement with Woolworths (+7.2%).
Australian bonds returned just under 0.5% in June, with Australian corporate debt returning 0.3% and government debt returning just over 0.5%. Long-term government bonds (with a maturity of ten years or more) returned 1.1%.
Australian economic growth is on a firm footing, supported by a bounce in global growth, a rallying commodities sector, and improved business and public sector investment. However, while there has been a surge in employment and hours worked over the past year, momentum has slowed from 2017’s pace, and wages growth remains subdued at around 2.0%.
(Lonsec June 2018, Issue Date: 09-07-2018)
Lonsec Market Commentary – May 2018
The S&P/ASX 200 Accumulation Index rose 1.1% in May, with the biggest gains coming from the Health Care (+5.6%) and Consumer Discretionary (+5.1%) sectors. Global developed market shares, measured by the MSCI World Ex Australia Index, returned 0.5% through May in AUD terms, bolstered predominately by gains from the United States and United Kingdom.
Australian bonds returned 0.7% in May, with Australian government bonds returning 0.8% and longer-term government bonds (with a maturity of ten years or more) returning 1.3%.
The Reserve Bank of Australia (RBA) left the cash rate anchored at 1.5% at its June meeting, and judging by the most recent Statement on Monetary Policy, it is unlikely to change course any time soon. Ongoing low wages growth, uncertainty over the extent and impact of the recent tightening in home lending conditions, and inflation barely in the bottom of the RBA’s target range suggest that it would be premature to begin exiting current accommodative policy settings.
(Lonsec May 2018, Issue Date: 09-06-2018)
Lonsec Market Commentary – April 2018
The S&P/ASX 200 Accumulation Index rose 3.8% in April, driven by rises in commodity prices, allowing the index to rebuild following falls through February and March.The MSCI World ex-Australia Index rose 2.8% in Australian dollar terms as global equity markets recovered from the previous month.
In a decision that undoubtedly surprised very few, the RBA left the cash rate on hold at 1.50% at its May meeting, making this the 21st successive month and the longest spell of inactivity since 1990. While there was no discernible shift in rhetoric, the Bank noted that inflation is moving in line with expectations, sitting just below the target 2% rate.
The Australian dollar fell -1.7% against the US dollar in April and -1.2% on a trade-weighted basis, finishing the month at USD 0.75. The relative weakness in the Australian dollar was mostly due to renewed strength from the greenback, which rose late in the month in response to inflation data. The Australian dollar was steady against the British pound and euro, and higher against the Japanese Yen.
(Lonsec April 2018, Issue Date: 09-05-2018)