Monthly market update September '20
Global equity markets fell over September, due to concerns over apparent second waves of COVID-19 in a number of developed countries, with recorded cases surpassing 32 million and the death toll passing one million. As cases have trended higher, several European countries have tightened social distancing restrictions with the UK imposing a series of new measures to slow down the virus. The environment in Australia continued to improve, with South Australia and Queensland looking to ease border restrictions with New South Wales, whilst new cases in Victoria fell faster than expected with the prospect of reopening sooner than the Government’s initial timeline.
With the US elections looming, the volatile first round of the presidential debates occurred in late September but was quickly overshadowed by President Trump testing positive for COVID-19 post month-end. The US equity market ended the month lower following a mid-month sell off driven by technology stocks, with the S&P 500 Composite returning -3.8% (in local currency terms). The Federal Reserve followed through with its shift to average inflation targeting and provided forward guidance that it expected to keep rates unchanged until 2023, indicating it would maintain an accommodative stance until it has achieved the average inflation rate of 2%.
Positive momentum in US economic data continued, with the US unemployment rate falling to 7.9% in September (down from 8.4% in August). The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) rose to a record high of 83 in August from 78 in the previous month, as lower mortgage rates continue to support the demand for new homes. The Markit US Manufacturing PMI increased to 53.2 in September from 53.1 in August, as firms continued to hire and increase capacity to meet the rise in new orders (any number above 50 signals an expansion in manufacturing activity compared to the previous month).
The Chinese equity markets ended the positive momentum experienced this year and fell in September, with the Shanghai Composite Index returning -5.2% (in local currency terms). Although equity markets fared poorly, the economic data in September showed manufacturing activity growth as the country continues to recover after successfully containing the virus. Chinese business conditions were largely unchanged and remained expansionary in September, with the Caixin Manufacturing PMI at 53.0 in September, from 53.1 in August (a reading above 50 indicates an expansion of the manufacturing sector compared to the previous month). The CNY depreciated 0.8% against the USD, with 1 USD buying 6.79 CNY at the end of the month.
European equities, as measured by the Euro Stoxx 50 Index, returned -2.3% (in local currency terms), in light of further restrictions being reimposed as coronavirus cases increased some countries. The Eurozone PMI Composite Output Index reading was 50.4 over September (down from 51.9 in August), with only marginal expansion in the private sector economy. The Eurozone Consumer Economic Sentiment Index improved over the month at -13.9 (better than the -14.7 reading in August) indicating that consumer confidence is picking up but still well below pre-pandemic levels (-100 indicates an extreme lack of confidence, 0 neutrality and 100 extreme confidence).
Elsewhere, equity market returns were broadly negative in September. The UK FTSE 100 index fell 1.5% over the month in local currency terms. The Japanese equity market (measured by the TOPIX index) fared better and returned 1.3% as Suga Yoshihide was elected as Japan’s new Prime Minister, following the abrupt resignation of Abe Shinzo due to health concerns. Emerging markets returned -3.5% for the month in local currency terms, reflecting the uptick in the level of cases in emerging countries, primarily India, and associated Government restrictions.
Australian shares, as measured by the S&P/ASX 300 Accumulation Index, returned -3.6% over the month, following the decline in global equity markets. All sectors fell with the exception of Health Care, which returned 0.8%. Industrials were the second best performing sector (-0.3%) followed by Telecommunications (-2.1%). Losses were led by the Energy sector (-10.7%), Consumer Staples (-6.6%) and Information Technology (-6.4%). The Australian listed property market fell by 1.1% in September, as measured by the S&P/ASX 300 A-REIT Accumulation Index. In its September meeting, the RBA left the cash rate on hold, however exhibited a more dovish tilt by increasing the current Term Lending Facility for banks to $200 billion (from $90 Billion) and extending out to June 2021. The Manufacturing PMI (as measured by the Ai Group Australian Performance of Manufacturing Index) declined to 46.7 in September from 49.3 last month, falling deeper into contraction territory.
Major global bond yields fell over September, with the Australian 10-year Government bond yield falling by 13bps to 0.85%, the US 10-year Government bond yield falling 2bps to 0.68%, the UK 10-year Government bond yield falling by 8bps to 0.23%, the German 10-year Government bond yield falling by 12bps to -0.52%, the Japanese 10-year bond yield falling 3bps to 0.02% and the Italian 10-year Government bond yield falling 29bps to 0.87%.
The Australian dollar depreciated alongside the increased uncertainty, falling 2.9% over the month against the USD, and ending September at 71.6 US cents. Similarly, the Trade Weighted Index closed at 60.7 for the month, down from 62.6 at the end of August, indicating depreciation of the AUD against the currencies of its major trading partners.
Note: This investment commentary does not constitute advice. All investment figures quoted relate to before-tax performance of the relevant industry benchmark. © 2020 Willis Towers Watson.
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