Lonsec Market Commentary – October 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 Market Commentary – October 2018

(Lonsec October 2018, Issue Date: 09-11-2018)

Lonsec Market Commentary – September 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 Market Commentary – September 2018

(Lonsec September 2018, Issue Date: 09-11-2018)

Lonsec Market Commentary – August 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 Market Commentary – Aug 2018

(Lonsec August 2018, Issue Date: 09-09-2018)

Lonsec Market Commentary – July 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 Market Commentary – July 2018

(Lonsec July 2018, Issue Date: 09-08-2018)

Lonsec Market Commentary – June 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 Market Commentary – June 2018

(Lonsec June 2018, Issue Date: 09-07-2018)

Lonsec Market Commentary – May 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 Market Commentary – May 2018

(Lonsec May 2018, Issue Date: 09-06-2018)

Lonsec Market Commentary – April 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 Market Commentary – April 2018

(Lonsec April 2018, Issue Date: 09-05-2018)

Lonsec Market Commentary – March 2018

Lonsec Market Commentary – March 2018 

The S&P/ASX 200 Accumulation Index fell 3.8% in March, topping off the worst Q1 performance since the GFC despite a mostly positive earnings season in February. Potential inflation is still a concern for investors, and the market is steeling itself for the next rate hike from the RBA, which, when it finally comes, will be the first increase since November 2010.

The MSCI World ex-Australia Index returned -2.3% in both Australian dollar and local currency terms as global equity markets continued to slide through March. While underlying economic data is broadly positive, markets remain concerned about the prospect of inflation as well as the potential for a trade war between the US and China.

The US Fed voted to raise the funds rate in March by 25 basis points to a target range of 1.50–1.75%, but this was not enough to prevent yields from heading down. Australian bonds returned 0.84% over March, with Australian government bonds returning 0.99% and longer-term government bonds (ten years plus) returning 2.60%.

Despite leaving the cash rate on hold at its March meeting, the RBA continues to expect labour markets to tighten globally, and for central banks to get on the front foot by withdrawing stimulus. In its statement, the RBA mentioned the market’s concerns about US trade policy and the contribution it has made to heightened volatility. The expectation is for CPI inflation to be a bit above 2% in 2018, but central banks have already done a great deal of expecting.

Lonsec Market Commentary – March 2018

(Lonsec March 2018, Issue Date: 09-04-2018)

Lonsec Market Commentary – February 2018

Lonsec Market Commentary – February 2018 

The S&P/ASX 200 Accumulation Index rose 0.4% in February, with losses during the start of the month fully regained on a total return basis. The MSCI World ex-Australia Index returned -0.6% in Australian dollar terms and -3.6% in local currency terms as global equity markets were rocked by volatility and a sharp correction early in the month.

Australian bonds returned 0.29% over February, with Australian government bonds returning 0.28% and longer-term government bonds (ten years plus) returning 0.17%. The Australian 10-year yield was flat over February at 2.81%, but jumped to a high of 2.94% early in the month.

The outlook for Australia continues to improve, with unemployment expected to approach 5% over coming years and wages growth to pick up modestly. From a monetary policy perspective, this outlook suggests that while the next move in cash rates is likely to be up, there is little urgency.

The RBA is mindful that wages growth remains low, housing activity appears to be rolling over, and the Australian dollar is still close to 80 US cents, which is probably too high for the Bank’s liking. In its March statement, the RBA had little to say about recent market turmoil, noting only that, “market volatility has increased from the very low levels of last year.”

Lonsec Market Commentary – February 2018

(Lonsec February 2018, Issue Date: 09-03-2018)

Lonsec Market Commentary – January 2018

Lonsec Market Commentary – January 2018 

Fixed income markets saw some serious action through January, with yields expanding significantly in response to the market’s reassessment of risk factors and interest rate movements. Australian bonds returned -0.27% over January, with Australian government bonds returning -0.35%, and longer-term government bonds (ten years plus) returning -1.02%.

The RBA’s February monetary policy statement was undeniably more bullish compared to its December release, but nevertheless the board opted to keep the cash rate on hold at 1.50%, with inflation still low but expected to move higher. The Bank’s central forecast for GDP growth is just above 3% over the next two years, supported by monetary policy conditions that remain expansionary, while the benefits of broad-based global growth and increased international trade are flowing through to the local economy.

The S&P/ASX 200 Accumulation Index fell 0.5% in January, pulled down by yield-sensitive utilities and property. The US S&P 500 Index rose 5.6% in US dollar terms, pushing to a new record high of 2690.16 points during the month, before dropping early in February as the market underwent a major correction and volatility spiked.

Lonsec Market Commentary – January 2018

(Lonsec January 2018, Issue Date: 09-02-2018)