Investment update for January 2020
Global economy responds to coronavirus
International equity markets produced a small negative return in the first month of 2020 amid news of the coronavirus outbreak. China’s economic activity had showed some signs of responding to accommodative monetary and fiscal policy, but the coronavirus outbreak will be a drag on economic growth. While the conflict between the US and Iran had little impact on markets, the Phase One trade deal between US-China boosted market sentiment.
Economic conditions in the US remained broadly positive. The service side of the economy was resilient and consumption growth was steady although manufacturing remained weak as the December release of the manufacturing survey showed ongoing contraction. After outperforming in December, the UK equity market underperformed in January. European economic growth remained subdued but there was improvement in the manufacturing sector and trade. There was also some modest improvement in Japan’s industrial production, as well as ongoing fixed asset investment leading into the 2020 Tokyo Olympics.
The Australian equity market was an exception, producing a very strong return over the month, although it did retrace late in January due to concerns about the spread of coronavirus. The strong return was also despite the local bushfire crisis.
Central banks globally maintained a dovish stance on monetary policy. The US Federal Reserve, the European Central Bank, Bank of Japan, Bank of England, and Reserve Bank of Australia all held rates unchanged in the month, but indicated that monetary policy remained accommodative to support economic conditions. The People’s Bank of China cut required reserve rates which injected liquidity to support the economy.
Bond markets rebounded to deliver positive returns in January, supported by dovish monetary policy and rising concerns about coronavirus weighing on the global economic growth outlook.
The downside risk arising from coronavirus also put downward pressure on commodities and the oil price, which contributed to the Australian dollar depreciating sharply against major currencies in January. The AUD to USD declined from 0.7003 to 0.6724 in the month.
The economic concerns benefited gold price which was heading for the highest close in more than six years. Listed property and infrastructure benefited from the reduction in bond yields, producing positive returns in the month.
Please view our full investment commentary brought to you by our advisers – Frontier – for a more in depth analysis of market conditions this month.
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