Lonsec Market Commentary – May 2019

Lonsec Market Commentary – May 2019

The S&P/ASX 200 Index returned 1.7% in May, with the price index rising above 6,500 points to end the month at just under 6,400 as global pressures, including the reemerging US-China trade dispute, added to uncertainty over the month.

The bond market is still expecting the Fed to ease policy through to 2020, while the US administration is showing it is prepared to keep the trade dispute with China running, and possibly even attempt to renegotiate deals with Mexico and Europe.

Market expectations for a cut in interest rates were satisfied in June as the RBA decided to lower the cash rate by 25 basis points to a record low 1.25%. The outlook remains broadly unchanged with the Australian economy expected to grow by 2.75% in both 2019 and 2020, but the RBA noted its intention is to provide additional support to the labour market and ensure that inflation expectations can be sustained.

Lonsec Market Commentary – May 2019

(Lonsec May 2019, Issue Date: 09-06-2019)

Lonsec Market Commentary – April 2019

Lonsec Market Commentary – April 2019

The S&P/ASX 200 Index returned 2.4% in April, rising above 6,300 points, but appeared to find some resistance in early May as it attempted to push past its previous August 2018 high. Performance was led by the Consumer Staples sector (+7.4%), with gains from A2 Milk Co (+17.2%), whose third quarter update revealed further gains in Chinese market share, and Bega Cheese (+10.7%), which won a dispute with Kraft Heinz over packaging design.

The RBA has maintained its cautious stance on monetary policy, holding the cash rate steady at 1.50% at its May meeting despite the expectation of a cut following a weak inflation reading for the March quarter. However, while the RBA acknowledges that the household sector is struggling, it still expects disposable income to lift on the back of a robust labour market.

The Australian economy enters an election campaign in a relatively vulnerable position, with growth slowing, household debt levels high and considerable uncertainty regarding the outlook for housing and, in turn, consumer spending. Not everything is negative, as evidenced by the low unemployment rate, strong exports, and improving business investment.

Lonsec Market Commentary – April 2019

(Lonsec April 2019, Issue Date: 09-05-2019)

Lonsec Market Commentary – March 2019

Lonsec Market Commentary – March 2019

Australian equities rose 10.1% over January and February, theS&P/ASX 200 Index paused in March, returning 0.7% before regaining momentum in the first week of April. Over the past year, the ASX has delivered a total return of 12.1%, driven predominately by the 50 largest shares, while the small cap index has returned only 5.8%. Outside of real estate, the top performing sector in March was Communications (+4.0%), with gains from Telstra (+6.1%) and TPG (+4.4%), which is still awaiting the ACCC’s approval for its Vodafone merger despite announcing its plans in August last year.

While equity markets stabilised, bond markets sounded alarms for investors as rapid falls in long-term yields resulted in an inverted yield curve (historically a signal that a recession is on the way). The US 10-year Treasury yield fell from 2.72% to 2.41% over March, while the spread between the 10-year and 2-year yields fell as low as 11.8 basis points. In Australia it was a similar story, with the 10-year yield dropping from 2.10% to 1.77%, a decline of nearly 60 basis points since the start of 2019.

With the possibility of a May election, the federal Budget was handed down a month before the regular budget season, presenting tax measures to please key voter groups, a further boost to infrastructure spending, and the much-vaunted return to surplus. As expected, the underlying cash balance is forecast to return to a surplus of $7.1 billion in 2019-20, or 0.4% of GDP. The
government is assuming GDP growth of 2.25% this financial year, rising to 2.75% in 2020-21 (with consumer spending forecast to grow at similar rates)

Lonsec Market Commentary – March 2019

(Lonsec March 2019, Issue Date: 09-04-2019)

Lonsec Market Commentary – February 2019

Lonsec Market Commentary – February 2019

Australian shares have been marching higher since the end of 2018, with the S&P/ASX 200 Index returning 10.1% over January and February, and in price terms now fully recovered since the start of the sell-off in October 2018. February’s gain of 6.0% was extended through the first week of March, with the Energy (+7.9%) and Information Technology (+7.6%) sectors once again performing strongly over the month.

Even as equities have rallied, money has still flowed steadily into bond markets, with yields further compressed through February and early March. This is in contrast to the market dynamic at the end of 2018, in which growth shocks and fears over Fed tightening led to a flight to safety, with investors favouring defensive shares and bonds. Globally, bonds gained 1.9% in February in Australian dollar terms, while Australian bonds returned 0.9%.

The most significant development in Australia over the past month has been the RBA’s shift in its policy bias from tightening to a neutral stance. Underpinning the change was a downgrade to the RBA’s growth forecasts, with GDP growth revised down to 3.0% in 2019 and 2.75% in 2020, while inflation is projected to be 2.0% for 2019 (down from 2.25%) before moving to 2.25% in 2020.

Lonsec Market Commentary – February 2019

(Lonsec February 2019, Issue Date: 09-03-2019)