Monthly market update January '19
January saw global equity markets bounce back after losses in December, although many of the same themes from last month persisted. Whilst there were positive signs regarding a potential resolution to the trade war between the US and China, the outcome remains uncertain. A similar thing can be said about the outcome of Brexit, with the UK no closer to reaching an agreement to leave the European Union. The US Federal Government shut down ended in late January after 35 days; the longest in US history; impacting around 800,000 government employees.
US equities performed strongly in January, with the S&P 500 Composite rising by 8.0% (in local currency terms), helped in large part by the Federal Reserve’s statement from their meeting in January. Although the Fed, as expected, left its target range of 2.25% to 2.50% after the December increase, they indicated that further rate hikes previously flagged for 2019 may no longer take place, with the Fed to adopt a more ‘patient’ response to future changes to the range given current market conditions and limited inflation pressures. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) rose to 58 in January, from 56 in December, whilst the Markit US Manufacturing PMI also rose, up to 54.9 in January, from 53.8 in December.
In a historic result that was widely expected, Theresa May’s Brexit proposal was comprehensively defeated in British Parliament, the result being the heaviest ever defeat for a Government in power. With less than two months until the UK is scheduled to leave on March 29, negotiations are continuing to play out in London, although the EU are insisting they are not willing to negotiate a new deal. The Markit Eurozone Manufacturing PMI continued its decline, falling to 50.5 in January, from 51.4, whilst the Eurozone PMI Composite Output Index also fell very slightly to 51.0 (from 51.1 in December). European equities, as measured by the Euro Stoxx 50 Index, rose 5.3% over the month (in local currency terms). More broadly, the MSCI World ex Australia Index rose by 7.3% (in local currency terms), whilst the equivalent unhedged AUD index only rose by 4.1%, due to AUD appreciation.
The Chinese stock market, as measured by the Shanghai Composite Index, rose 3.6% in January (in local currency terms). The Chinese RMB also rose against the USD, appreciating by 2.6% over the month. The Chinese manufacturing PMI, as measured by the Caixin Manufacturing PMI, fell to 48.3 in January, from 49.7 in December. Emerging markets bounced in January, with the MSCI Emerging Markets Index increasing by 7.2% over the course of the month (in local currency terms).
The Australian share market, as measured by the S&P/ASX 300 Accumulation Index, rose by 3.9% during the month. Most individual sector returns were positive, with Energy (11.5%), IT (8.8%) and Telecommunications (7.7%) the best performing sectors, whilst Industrials (3.4%), Consumer Staples (2.7%) and Financials (-0.3%) were the worst performing sectors. The Australian listed property market, as measured by the S&P/ASX 300 AREIT Accumulation Index, rose by 6.0% in January, outperforming the S&P/ASX 300 Accumulation Index by 2.1%. The Reserve Bank of Australia met in early February and, as expected, left the cash rate unchanged at 1.5%. In their minutes, the Board indicated their belief that ‘downside risks have increased’, as well as reduced their GDP growth forecasts for the Australian economy.
After a steep drop in December, global bond yields continued to decline in January, albeit to a lesser extent. The US 10-year government bond yield fell by 5bps to 2.63%, the Australian 10-year government bond yield fell by 8bps to 2.24% and the UK 10-year government bond yield fell by 6bps to 1.22%. The 10-year German government bond yield also fell, by 9bps, ending the month at only 0.15%.
The Australian dollar bounced back against the US dollar in January, finishing at 72.73 US cents, compared to 70.49 US cents at the end of December (a rise of 3.2%). Additionally, the AUD also rose against the currencies of Australia’s major trading partners, albeit to a lesser extent, with the Trade Weighted Index closing the month at 61.6, up from 60.7 at the end of December.
Update provided by Willis Towers Watson, legalsuper’s investment asset consultant. This investment commentary does not constitute advice. All investment figures quoted relate to before-tax performance of the relevant industry benchmark.
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