Equity markets continued to rally in the month of April, buoyed by positive rhetoric regarding US-China trade, an increasingly dovish tone from major central banks (i.e. an indication of their intention to cut interest rates), and macro-economic data releases from China that surprised on the upside, with GDP growth for the March quarter stabilising at 6.4%, driven by stronger Industrial Production (+8.5% compared to the previous year). In Europe, the EU and the UK agreed to extend the Brexit deadline to 31 October 2019, deferring the prospect of a no-deal exit and providing support for the markets in the region.
In Australia, the Reserve Bank of Australia (RBA) left the official cash rate on hold at 1.5%, unchanged for 33 months. However, slight changes to the language in Governor Lowe’s accompanying statement were interpreted by the market as reflecting an easing bias, leaving the bond markets expectations of a 0.25% rate cut by October. Competing tensions between the labour market growth and inflation continued in April as a strong employment reading (+26k) was in contrast to a weak CPI report for the March quarter, which reduced the annual core inflation figure to 1.4%.
The investment returns of the major markets for one and three months, financial year, and one year to 30 April 2019 are summarised below.
Market Performance – 30 April 2019 | Month | Quarter | FYTD | 1YR |
Australian Equities | 2.5% | 9.4% | 5.7% | 10.3% |
Overseas Equities (Hedged into AUD) | 3.9% | 9.4% | 7.2% | 9.1% |
Overseas Equities (Unhedged into AUD) | 4.6% | 12.2% | 11.8% | 14.9% |
Emerging Markets (Unhedged into AUD) | 3.1% | 7.0% | 8.1% | 2.2% |
Australian Property (Unlisted) | 0.5% | 1.4% | 6.1% | 8.7% |
Australian Property (Listed) | -2.3% | 5.5% | 12.0% | 18.0% |
Global Listed Property (Hedged into AUD) | -1.0% | 3.2% | 7.8% | 12.7% |
Australian Bonds | 0.3% | 3.1% | 6.6% | 7.9% |
Overseas Bonds (Hedged into AUD) | 0.0% | 1.8% | 4.4% | 5.0% |
Cash | 0.2% | 0.5% | 1.7% | 2.0% |
Australian Dollar vs. US Dollar | -0.9% | -3.5% | -4.7% | -6.8% |
Source – JANA, FactSet
Global equities rose strongly in April. In the US, the S&P 500 Index returned 4.0% in April during which it reached an all-time high and officially confirmed the current bull market as the longest on record. The US reporting season saw earnings exceed previously reduced expectations, particularly for banking stocks which resulted in Financials being the best performing sector in April. Key to the risk-on behavior was the release of the Federal Reserve’s minutes from its March meeting which confirmed a more balanced view toward the likely direction of policy interest rates. Further support came from a series of ‘goldilocks’ data releases, such as a steady unemployment rate (3.8%) and wage growth (3.3% y/y) at a level not high enough to raise concerns of an inflation outbreak.
In line with global markets, Australian equities also rose strongly during the month with the ASX 300 up 2.5%. Cyclicals stocks underperformed as defensive sectors including REITS (-2.3%) and Utilities (-0.5%) were in negative territory. Information Technology (+7.3%) was the best performing sector, while Consumer Staples (+7.3%) benefited from the Chinese growth story that saw a spike in the share price for ‘desirable’ Australian goods producers like A2 Milk and Treasury Wine Estates. Australian small caps stocks (4.1%) outperformed, while large caps stocks (2.1%) underperformed the broader market.
The Australian Dollar depreciated against all major currency pairs on the back of domestic rates expectations despite an increase in the price of iron ore (+8.8%) which appeared to provide little support. The most pronounced falls were against the USD (-0.9%), Pound (-1.0%) and Euro (-0.7%), while declines were more modest against key Asian currencies.
Australian bonds delivered a positive return over the month, while overseas bonds were flat.
