Investment update for November 2019
Increased commodity prices help Australian resources
Globally, central banks continued to maintain a dovish stance on monetary policy. International equities produced positive returns in November to continue the strong performance in 2019. This was supported by renewed optimism with the US and China phase one trade deal. US economic growth was revised upward in the third quarter with consumption and employment remaining the key contributors. The US Federal Reserve suggested that the current monetary policy position was sufficiently accommodative to support favourable economic conditions and that the Fed might keep interest rates on hold.
Christine Lagarde’s first speech as President of the European Central Bank (ECB) proposed a new European policy mix, calling for more public spending as a backup to monetary policy. European economic activity improved but remains fragile.
In Japan, retail sales plunged following a consumption tax hike. The Bank of Japan reduced the purchase of domestic securities to prevent the long term yield from sliding far below its target, while the Bank of England held the policy rate unchanged in November.
The Chinese equity market produced a negative return in the month, as industrial profits and retail sales fell. There are also concerns that the ongoing protests in Hong Kong will be a drag on China’s economic outlook.
The Australian equity market return was positive. The Resources sector was the key contributor which was driven by an increase in commodity prices over the month. However, Australian banks had a negative return for the month. In particular, Westpac’s share price fell materially in response to alleged breaches of anti-money laundering laws and its CEO stepping down.
A speech by the RBA Governor indicated that unconventional monetary policy is unlikely in the near future. The RBA advised that they would consider quantitative easing (QE) at a cash rate of 0.25 per cent. This shifted down the cash rate futures yield curve.
The Australian dollar depreciated against all major currencies in November due to market expectations about further interest rate cuts and the possibility of QE, as well as slow Chinese economic growth.
Australian bonds produced a positive return in November. International government bond yields were negative in the month but have still produced favourable returns over the last 12 months.
Australian listed property and infrastructure benefited from the small reduction in Australian bond yields and had positive returns in the month. Global listed property and infrastructure posted negative returns, consistent with global bonds.
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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