March 2017 Monthly Commentary
(Update provided by Willis Towers Watson, legalsuper’s investment asset consultant)
March 2017 Monthly Commentary
Doubts about whether President Trump’s pro-business policies will be able to pass through Congress, especially after the failure of the Obamacare reforms, were largely offset by strong global economic data. The Federal Reserve increased the target range for the federal funds rate by 0.25% to 0.75% to 1.00% in its December meeting, a move that was largely predicted by financial markets.
In the US, builder confidence in the market for newly built, single-family homes, measured by the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) rose to 71.0 in March from 65.0 in February. This is the highest reading since 2005. The Markit Manufacturing PMI for the US fell to 53.4 from 54.2 the previous month.
The United Kingdom notified the European Union (EU) of its intention to exit, beginning two years of divorce proceedings where it is expected the EU will be a hard negotiator. The Eurozone’s core inflation reading increased to 0.7% year-on-year for March, which is still well below the ECB’s target of 2%. Headline CPI is expected to rise to 1.5% for the year to March. The Markit Eurozone Manufacturing PMI rose to 56.2 in March, increasing from 55.4 in the previous month, which was the strongest expansion in factory activity since April 2011. The Eurozone PMI Composite Output Index rose to 56.7 in March from 56.0 in February. The Eurozone stock market returned 5.5% over the month based on the Euro Stoxx 50 index in local currency terms. On a one year basis, the same index returned 16.5% in local currency terms.
The People’s Bank of China increased key money rates by 0.1% in a bid to slow the acceleration of growth. The Chinese manufacturing PMI as measured by Caixin Manufacturing PMI fell to 51.2 in March, from 51.7 in February. The Chinese RMB depreciated against the USD over the month by 0.3%, and the Chinese stock market generated a negative return of 0.6% (in local currency terms), as measured by the Shanghai Composite Index. Over the same period, the MSCI World ex Australia Accumulation Index returned 0.9% in local currency terms, and 1.8% in unhedged Australian dollar terms.
The Board of the Reserve Bank of Australia felt that maintaining the cash rate at 1.5% was consistent with creating sustainable growth and inflation conditions. Despite growth predictions, forecasted annual inflation for the end of March is unchanged at 1.5% year on year, below the RBA’s target of 2-3%. The minutes of the meeting revealed the Board also discussed the “build-up of risks associated with the housing market.” In light of this the Australian Prudential Regulation Authority (APRA) strengthened macro prudential policies for banks in a bid to slow the property markets, particularly in Sydney and Melbourne.
The Australian Industry Group (AIG) PMI data fell by 1.8 points to 57.5 in March. The Australian stock market, as measured by the S&P/ASX 300 Accumulation Index, returned 3.3% over March. The strongest sectors over the month (excluding listed property) were Utilities (6.3%), Healthcare (5.6%) and Consumer Staples (5.5%); while the Information Technology (3.6%), Telecommunications (0.3%), and Materials (0.2%) sectors experienced weaker returns. The Australian listed property market, as measured by the S&P/ASX 300 AREIT Accumulation index, returned 0.7% over March, underperforming the S&P/ASX 300 Accumulation Index by 2.6%.
Movements in bond yields over the month were very minor. UK and Australian 10-year government bond yields fell by 0.01% and 0.02% respectively, finishing the month at 1.14% and 2.70%. The German 10-year government bond yield increased by 0.12% to 0.33%, while the US 10-year bond yield remained unchanged at 2.39%.
The Australian dollar weakened against the US dollar, finishing the month at 76.29 US cents; compared to 76.57 US cents at the end of February. The AUD depreciated modestly against the currencies of Australia’s major trading partners, as measured by the Trade Weighted Index, which closed the month at 66.2 (down from 66.7 at the end of February).
Note: This investment commentary does not constitute advice. All investment figures quoted relate to before-tax performance of the relevant industry benchmark. © 2017 Willis Towers Watson.