Monthly market update November '18
November was a mixed month for global financial markets with volatility featuring across the board. President Trump remained front and centre for the month and whilst there was progress on a Brexit deal, the ultimate outcome remains uncertain. The Australian dollar appreciated against the USD over the month, finishing at 73.06 US cents at the end of November and also rising against many of its trading partners. Bond yields fell over the month in all major economies.
US shares fluctuated significantly in November, although the S&P 500 Composite Index did rise overall for the month by 2.0% (in local currency terms). This return was largely thanks to a strong final week, with the index rising by 4.9%, the most positive weekly return since 2011. The Federal Reserve met early in November, keeping interest rates at the range of 2% to 2.25%. Although a rate rise is still expected for December’s meeting, minutes released at the end of the month indicate the Fed is now strongly considering whether to slow the rate of projected hikes planned for next year given current market conditions. In results that were largely expected, the Democrats gained control of the House of Representatives in the US mid-terms, while the Republicans will maintain their majority in the Senate. A split congress implies that President Trump will likely face more obstacles to achieving his legislative agenda over the next two years. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) fell heavily to 60 in November, from 68 in October, whilst the Markit US Manufacturing PMI fell slightly fell to 55.3 in November, from 55.7 in October.
UK negotiators finally agreed with the leaders of the EU on a deal for Brexit to take place as planned on 29th March next year. Theresa May still faces an uphill battle to get the agreement through the British Parliament, with a decision to be made on 11th December. The Markit Eurozone Manufacturing PMI fell slightly to 51.8 in November, from 52, whilst the Eurozone PMI Composite Output Index also declined, falling to 52.4 (from an upwardly revised 53.1 in October). European equities, as measured by the Euro Stoxx 50 Index, fell 0.8% over the month (in local currency terms). More broadly, the MSCI World ex Australia Index rose by 1.2% (in local currency terms), whilst the equivalent unhedged AUD index fell by 1.8% due to the appreciation of the AUD.
The Chinese stock market, as measured by the Shanghai Composite Index, fell 0.6% in November (in local currency terms). The Chinese RMB rose slightly against the USD, appreciating by 0.2% over the month. The Chinese manufacturing PMI, as measured by the Caixin Manufacturing PMI, also rose slightly, rising to 50.2, from 50.1 in October. Emerging markets, more broadly, bounced back in November, with the MSCI Emerging Markets Index increasing by 3.0% over the course of the month (in local currency terms).
The Australian share market, as measured by the S&P/ASX 300 Accumulation Index, fell by 2.2% over the month, with returns over the past 12 months now at -1.0%. Most sectors experienced negative returns for the month, with Financials (1.4%), IT (1.0%) and Industrials (-0.6%) performing the best, whilst Consumer Discretionary (-4.5%), Materials (-10.3%) and Energy (-11.4%) were the worst performing sectors. The Australian listed property market, as measured by the S&P/ASX 300 AREIT Accumulation Index, fell by 0.3% in November, outperforming the S&P/ASX 300 Accumulation Index by 1.9%.The Reserve Bank of Australia met in early December and, as expected, left the cash rate unchanged at 1.5%.
Bond yields fell across the board in November as the US 10-year government bond yield fell by 16bps to 2.99%, the Australian 10-year government bond yield fell by 3bps to 2.59% and the UK 10-year government bond yield fell by 7bps to 1.36%. The 10-year German government bond yield also fell by 7bps, ending the month at 0.31%.
The Australian dollar, aided by the Fed comments towards the end of the month, appreciated significantly against the US dollar in November finishing at 73.06 US cents, compared to 70.73 US cents at the end of October (a rise of 3.3%). Additionally, the AUD rose against the currencies of Australia’s major trading partners, as measured by the TWI, closing the month at 63.3, from 61.9.
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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