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)

Lonsec Market Commentary – January 2019

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 Market Commentary – January 2019

(Lonsec January 2019, Issue Date: 09-02-2019)

Lonsec Market Commentary – December 2018

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 Market Commentary – December 2018

(Lonsec December 2018, Issue Date: 09-01-2019)

Lonsec Market Commentary – November 2018

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 Market Commentary – November 2018

(Lonsec November 2018, Issue Date: 09-12-2018)