Monthly market update September '19
September was a solid month for global equity markets, with all major markets bouncing back following losses in August. The MSCI World ex Australia Index rose by 2.3% (in local currency terms) in August, whilst the equivalent unhedged AUD index rose by 2.0%, which was slightly lower due to the appreciation of the Australian dollar. Geopolitical issues continued to dominate the news, as renewed optimism regarding the trade war had a positive impact on equity markets, whilst the US Federal Reserve cut rates for the second time this year (which was followed by the RBA cutting rates for the third time locally in early October). Bond yields, including in the US and Australia, largely rose in September, finally bringing to a halt the downward trajectory we have seen over the past year.
US equity market returns were positive in September, with the S&P 500 Composite returning 1.8% (in local currency terms). Whilst there is new hope that China and US could reach an agreement when parties begin negotiations again in the US in October, markets remain cautious regarding the ongoing trade war. The trade war news comes on the back, however, of renewed impeachment calls for President Trump, accused during the month of enlisting the help of the President of Ukraine to provide potentially harmful information on a political opponent for the 2020 presidential election. The Federal Reserve cut the Federal Funds Rate again in September, to a new target range of 1.75% to 2%, on the back of sluggish growth and inflation numbers, as well as the continued threat to the economy caused by the trade war. Whilst further cuts remain in the frame, Fed Chair Jerome Powell has, at this stage, ruled out using negative rates. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) rose to 68 in September, from 67 in August, whilst the Markit US Manufacturing PMI also rose over the month, with the index reaching 51.1, from 50.3 in August.
In Europe, the Brexit show continued to roll on, with Britain’s Supreme Court during the month ruling that Boris Johnson’s suspension of Parliament was in fact unlawful, although Johnson has continued to resist calls for him to resign. Whilst the outcome of Brexit remains uncertain, it is becoming more likely that a delay to the latest deadline of 31 October will occur again, with a bill now having passed through parliament forcing Johnson to seek a further extension, should no Brexit deal be agreed upon by 19 October. The European equity market, as measured by the Euro Stoxx 50 Index, returned an impressive 4.2% over the month (in local currency terms). The Markit Eurozone Manufacturing PMI fell to 45.7 in September, from 47.0 in August, whilst the Eurozone PMI Composite Output Index also fell to 50.1, from 51.9.
Chinese equities performed positively in September, with the Shanghai Composite Index rising 0.7% for the month (in local currency terms). The Chinese manufacturing PMI, as measured by the Caixin Manufacturing PMI, improved in September to 51.4, from 50.4 in August. The CNY was largely flat month to month against the USD over the month, with the latter buying 7.15 CNY.
The Australian equity market rose broadly in line with other markets in September, as the S&P/ASX 300 Accumulation Index returned 1.9%. Most individual sectors delivered positive returns for the month with Energy (4.5%), Financials (4.2%) and Consumer Discretionary (3.3%) the best performing sectors, whilst Industrials (-0.1%), Healthcare (-2.2%) and Telecommunications (-2.8%) were the worst performers. The RBA met at the beginning of October and cut the cash rate to 0.75%, a new record low. The cut was made as an attempt to raise employment and inflation, which continues to lag the RBA’s 2-3% target range. Despite being the third cut this year, market participants are pricing in another cut by early 2020, as concerns about the growth of the Australian economy remain. The Australian listed property market performed poorly over the month and fell by 2.7%, as measured by the S&P/ASX 300 AREIT Accumulation Index, underperforming the broader market for the month by 4.6%.
Major global bond yields largely rose in September, on the back of the positive market sentiment. The US 10-year Government bond yield rose 17bps to finish at 1.66% (although did get as high as 1.90% during the month). The Australian 10-year Government bond yield rose by 13bps to end September at 1.02%, whilst the 10-year German Government bond yield also rose, increasing by 13bps to end the month at -0.57%. The UK 10-year Government bond yield rose very slightly, by 1bp, to finish at 0.49%, whilst the Italian 10-year Government bond yield fell by 18bps, ending September at 0.82%.
The Australian dollar appreciated by 0.3% against the USD over the month, finishing at 67.50 US cents, up from 67.33 US cents. The Trade Weighted Index closed at 59.2, up from 58.9 at the end of August, reflecting an appreciation of the AUD against the currencies of its major trading partners.