After a strong market rally in the first two months of 2019, the month of March saw more benign markets. This slowing pace was due to growing investor caution, prompted by increased global recessionary fears, continuing geopolitical concerns (namely the US-China trade deal and Brexit), and a return to higher market valuations.
The US Federal Reserve’s adjusted growth outlook also played out in US bond markets, causing yields to fall particularly longer-term rates, driving positive bond returns over the month. The fall in longer term interest rates caused the US Treasury yield curve to invert (the three-month Treasury bill yield is higher than that of 10-year bonds) for the first time in ten years. This is historically a signal associated with a pre-recessionary environment. Notably, the Fed downgraded its projections for US GDP growth from 2.3% to 2.1%, lowered its inflation forecasts by 10 bps to 1.8%, and reduced expectations for interest rates hikes.
In Australia, the Reserve Bank of Australia (RBA) left the official cash rate on hold at 1.5%, unchanged for 32 months. The RBA have also maintained its more recent neutral view, continuing to assign an equal probability that the next move could be an increase or decrease in the cash rate. This is predominately due to the RBA balancing the continued strength in the labour market (unemployment rate 4.9% in February), with other indicators that suggest a weakening economy, such as the December quarter GDP report which registered a low 0.2%. Despite this weakness, the RBA maintained a 3% growth target for 2019.
The investment returns of the major markets for one and three months, financial year, and one year to 31 March 2019 are summarised below.
Market performance – 31 March 2019
Overseas Equities (Hedged into AUD)
Overseas Equities (Unhedged into AUD)
Emerging Markets (Unhedged into AUD)
Australian Property (Unlisted)
Australian Property (Listed)
Global Listed Property (Hedged into AUD)
Overseas Bonds (Hedged into AUD)
Australian Dollar vs. US Dollar
Source – JANA, FactSet
The global equity markets mostly moved up in line with the US equity market’s upward progress, with the S&P500 appreciating by 1.8% over the month. The more defensive sectors of Consumer Staples and REITs were the strongest performing. While investors have been buoyed by the Fed’s more accommodative tone (i.e. no longer holding a tightening bias), they are cognisant of the broader implications for economic growth.
The Australian equity market as represented by the ASX300 was up 0.7% in March. Energy (-4.1%) and Financials (-2.6%) were the worst performing sectors over the month, while the more defensive sectors of REITs (6.0%), Telecommunications (3.8%) and Consumer Staples (3.7%) were the strongest performing sectors. Australian large caps (1.0%) outperformed, while small caps stocks (-0.1%) underperformed.
Most major currencies pairs were relatively range bound over the quarter, with most central banks moving to, or maintaining, relatively dovish views (i.e. more accommodative monetary policy). Notably the GBP was weaker across the board, predominately due to prolonged Brexit negotiations. The AUD depreciated against the USD (-0.2%) and Yen (-0.7%), but appreciated against the Euro (1.3%), and Pound (1.9%).
Australian and Overseas bonds delivered positive returns over the month.