Monthly market update April '19
Global equity markets continued their upward trajectory in April following the rebound in the March quarter. All major equity markets, with the exception of China, had positive returns over the month and global bond yields put a halt to their recent falls. Locally, the Federal Election campaign is now in full swing with incumbent Prime Minister Scott Morrison leading an uphill battle to be re-elected on May 18, with early polls indicating that Bill Shorten and the Labor Party are heavily favoured to win the election.
US equities were again positive in April with the S&P 500 Composite returning 4.0% (in local currency terms). The Federal Reserve met in early May and left interest rates on hold at a target range of 2.25% to 2.50%, despite President Trump’s demands for a rate cut. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) increased to 63 in April, from 62 in March, and the Markit US Manufacturing PMI rose to 52.6, from 52.4 in March.
Regarding Brexit, with the UK parliament still at loggerheads over an agreement to a suitable Brexit proposal, the EU has given Prime Minister May until 31 October to get a deal through. Although EU leaders continue to insist they will not partake in any renegotiation of the current agreement, the delay reduces the risk of a no-deal Brexit, which all parties are understandably keen to avoid. After a long period of decline in the back half of 2018, the Markit Eurozone Manufacturing PMI rose over the month, increasing to 47.9 from 47.5 in March, however, the Eurozone PMI Composite Output Index fell to 51.3, from 51.6 the previous month. European equities, as measured by the Euro Stoxx 50 Index, rose by 4.9% (in local currency terms). The MSCI World ex Australia Index rose by 3.8% (in local currency terms), whilst the equivalent unhedged AUD index rose by 4.6%.
With trade war tensions persisting, the Chinese stock market, as measured by the Shanghai Composite Index, fell by 0.4% in April (in local currency terms). The Chinese RMB depreciated slightly against the USD over the month, with the latter buying 6.73 CNY at the end of April, up from 6.71. The Chinese manufacturing PMI, as measured by the Caixin Manufacturing PMI, fell to 50.2 in April, from 50.8 in March, in a result that went against market expectations. Emerging markets equities also had another positive month in April, with the MSCI Emerging Markets Index increasing by 2.6% over the course of the month (in local currency terms).
The Coalition Government released their 2019-20 Federal Budget at the beginning of the month, with Treasurer Josh Frydenberg promising a budget surplus (for the first time in 12 years) if the Coalition maintains government. The Australian share market, as measured by the S&P/ASX 300 Accumulation Index, rose by 2.5% during the month. Most individual sector returns were positive, with IT (7.4%), Consumer Staples (7.3%) and Consumer Discretionary (5.5%) the best performing sectors, whilst Energy (1.5%), Utilities (-0.5%), and Materials (-2.1%) were the worst performing sectors. The Australian listed property market, as measured by the S&P/ASX 300 AREIT Accumulation Index, fell by 2.3% in April, underperforming the S&P/ASX 300 Accumulation Index by 4.8%. The Reserve Bank of Australia met in early April and again left the cash rate unchanged at 1.5%, although pressure is rising on the RBA to make a rate cut soon, particularly with year-on-year inflation (to the end of the March quarter) falling to 1.3% and quarter-on-quarter inflation at zero.
The Australian 10-year Government bond yield was largely flat in April, rising 1bp to 1.79%, having been on a decline since October last year. All other major global bond yields rose over the month, with the US 10-year Government bond yield rising by 10bps to 2.50% and the UK 10-year Government bond yield rising by 19bps to 1.19%. The 10-year German Government bond yield climbed out of negative territory over April, rising by 8bps to end the month at 0.01%.
The Australian dollar depreciated during the month against the USD, finishing at 70.48 US cents, from 70.96 US cents at the end of March (representing a fall of 0.7%). The AUD was flat against the currencies of major trading partners, with the Trade Weighted Index closing the month at 60.5, the same value as at the end of March.
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