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Monthly market update.

March 2018

Much of the focus in March was in relation to President Trump signing a memorandum imposing tariffs on over $50bn of Chinese imports, including steel and aluminum. This followed an earlier announcement of broad based steel and aluminium tarrifs. The initial response from China was modest with tariffs on $3bn of US imports, including wine, fresh fruit and nuts, however, it did spark fears of an escalating trade war. Also contributing to the equity market weakness were concerns surrounding the ‘FANG’ stocks (Facebook, Amazon, Netflix, Google/Alphabet), which sold-off sharply following Facebook’s privacy breach and President Trumps rhetoric on Amazon detracting value from the US economy. These factors had a contagion effect on global markets, as the MSCI ex-Australia (hedged) returned -2.2%.

In the US, the S&P 500 had its worst month in two years, sliding 2.7% primarily as a result of uncertainty surrounding trade tensions and concerns over “new age” technology stocks. This volatility in equity markets masked strong economic data, with the US unemployment rate stable at a 17 year low of 4.1% for the sixth consecutive month in March, consumer confidence being revised upwards during the month, and the Manufacturing PMI edging higher to 55.6 which is indicative of the strongest level of manufacturing since early 2015. Due to the broad-based growth observed in the US economy, the Federal Reserve, led by Jerome Powell in his first meeting as Chairman, raised rates by 0.25% to a target range of 1.5% to 1.75%. This was the sixth rate rise since December 2015 as the Fed continues its path to normalise monetary policy following its quantitative easing program post the GFC.

In Australia the ASX 300 fell by 3.7% as domestic equities were not immune from the sell-off impacting global markets. GDP data was released during the month, with growth slowing to 0.4% over the quarter and 2.4% over the year (from a previous level of 2.9%). This is despite a tightening labour market and the improvement in consumer confidence observed over the past 12 months. The RBA again left the official cash rate on hold at 1.5% for a record 17th consecutive meeting, citing the ongoing concerns surrounding subdued wage growth, low inflation levels and a desire to reduce unemployment further before considering tightening. The Financial Services Royal Commission resulted in negative sentiment which weighed on the banks, with the four majors falling between 5% and 7% over the month.

The MSCI World Index ex-Australia (hedged into AUD) fell 2.2% over the month. The Australian dollar depreciated against most developed market currencies in March, declining 1.9% against the Yen, 1.6% against the USD and 2.4% against the Euro. This resulted in the unhedged MSCI World Index ex-Australia returning -0.5%. In developed markets, Canada (-0.2%) and Switzerland (-0.3%) outperformed the broader market, while Australia (-3.7%) and Germany (-2.7%) underperformed. Emerging Markets marginally outperformed Developed Markets, with the MSCI Emerging Market Index returning -0.3%.

The S&P/ASX300 Accumulation Index fell 3.7% over the month. Small Cap stocks (-2.3%) outperformed the broader market, while Large Caps (-4.1%) underperformed. Defensive sectors of Real Estate (0.1%) and Utilities (-0.8%) were the strongest performing in Australia, whilst Telecommunications (-6.2%) and Financials (-5.9%) were the weakest.

Yields over the month fell across most developed markets as volatility in equity markets resulted in a risk-off sentiment. The yield on 10-year Australian and NZ Government bonds fell to 2.6% and 2.7% respectively. Elsewhere in the world, US 10-year yields fell to 2.7%, UK 10-year yields fell to 1.4%, German 10-year yields fell to 0.5% with Japan remaining broadly flat. In Australia both long dated bonds and inflation-linked bonds outperformed the broader market.

Market Performance – March 2018

(income and capital gain or loss) 


3 months

Australian Shares (S&P/ASX 300 Accumulation)

-3.7% -3.8%

International Shares (MSCI AC World ex-Aust) unhedged

-0.5% 0.9%

International Shares (MSCI AC World ex-Aust) hedged

-2.2% -2.1%

Unlisted Property (Mercer Unlisted Property Funds Index (Pre Tax)

1.6% 2.3%

Listed Property Trusts (S&P/ASX 300 Property Trusts Accumulation)

0.1% -6.2%

Australian Bonds (UBS Composite Index)

0.8% 0.9%

Global Bonds (Barclays Global Aggregate (Hedged))

0.8% -0.1%

Cash (UBS Bank Bills)

0.1% 0.4%

Appreciation of $A against $US

-1.6% -1.9%

Source – JANA, FactSet, S&P, MSCI, Mercer, Bloomberg, Barclays

Market Performance - 31 March 2018

Source – JANA, FactSet, S&P, MSCI, Mercer, Bloomberg, Barclays

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