Monthly market update November '19
November saw global equity markets pick up and rally once again despite ongoing geopolitical uncertainty. This was reflected by the 3.2% increase in the MSCI World ex Australia Index over the month (on a hedged to AUD basis), supported by investor optimism after some positive developments in US/China trade talks and improved economic data in the US. Political uncertainty over the Brexit outcome remained in the spotlight ahead of the upcoming UK general election. On domestic turf, despite relatively weak economic data, the RBA left the cash rate unchanged in early December to assess the full impact of monetary easing delivered over the past 6 months.
US equity market returns were positive in November, with the S&P 500 Composite returning 3.6% (in local currency terms), driven partly by constructive trade talks, which concluded in agreement to continue discussions on the remaining points of a deal as a result of China’s efforts to strengthen intellectual property protection. However, tensions worsened when the US signed into law a bill supporting human rights in Hong Kong, and tariffs remain scheduled for mid-December unless a deal is reached before then, or if the deadline is postponed. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) fell slightly to 70, from 71 in October, whilst the Markit US Manufacturing PMI rose to 52.6 in November, from 51.3 last month as a result of improved activity in manufacturing and services. Chinese equity markets contracted in November, with the Shanghai Composite Index falling 1.9% for the month (in local currency terms). The Chinese manufacturing PMI, as measured by the Caixin Manufacturing PMI, improved to a 3-year high of 51.8 in November, from 51.7 last month. The CNY appreciated against the USD over the month by 0.1%, with the latter buying 7.03 CNY.
In Europe, UK politics continued to dominate headlines as parties campaigned throughout November, ahead of the upcoming general election. Strong differences in poll results from October to mid-November highlighted the unpredictability of the electorate, with over 3 million people expected to swap allegiance between parties, indicating tactical voting and a deviation from usual party loyalties. Boris Johnson has agreed on a Brexit deal with the EU however the implementation bill will not be progressed before the general election, the result of which will determine the next step in the Brexit saga. In other news, Christine Lagarde officially replaced Mario Draghi as President of the ECB, while Germany narrowly avoided a technical recession owing to an improvement in the manufacturing sector. The European equity market, as measured by the Euro Stoxx 50 Index, returned 2.8% over the month (in local currency terms). The Markit Eurozone Manufacturing PMI rose to 46.9 from 45.9 in October, whilst the Eurozone PMI Composite Output Index was flat relative to October at 50.6.
The Australian equity market rebounded from negative returns last month, delivering a return in line with global equities, as reflected by the 3.2% rise in the S&P/ASX 300 Accumulation Index. The AIG Australian Manufacturing PMI fell significantly to 48.1 from 51.6 in October, whilst the NAB business confidence index jumped to 2 from 0, exceeding market expectations. Individual sector performance was mostly positive for the month with Information Technology (10.6%), Healthcare (8.8%), Consumer Staples (8.1%) and Energy (7.3%) the best performing sectors, whilst Financials (-2.0%) and Utilities (-0.5%) were the worst performers, with the former hit by allegations that Westpac breached anti-money laundering and counter-terrorism finance laws 23 million times. The RBA met at the beginning of December and decided to keep the cash rate unchanged at 0.75% based on expectations that inflation and growth will begin to pick-up following increased infrastructure expenditure, tax cuts and low interest rates. The Australian listed property market performed positively over the month, increasing by 2.3%, as measured by the S&P/ASX 300 AREIT Accumulation Index.
Major global bond yields rose in November, with the exception of the Australian 10-year Government bond yield, which declined by 12 bps to 1.04%. The US 10-year Government bond yield rose 9bps to finish at 1.78% and the UK 10-year Government bond yield rose by 7bps to finish at 0.70%. The 10-year German Government bond yield remained in negative territory with an increase of 5bps to end the month at -0.35%. Similarly the Japanese 10-year bond yield rose by 6bps to finish the month at -0.08%.
The Australian dollar depreciated by 1.3% against the USD over the month, finishing at 67.77 US cents, down from 68.64 US cents. The Trade Weighted Index closed at 59.0, down from 60.0 at the end of last month, reflecting a modest depreciation in the AUD against the currencies of its major trading partners.