Monthly Market Snapshot – December 2016

Equity markets increased 1.82%, rallying higher post the US election. Bonds continued its sell off with US and Australia 10 year yields rising to 2.37% and 2.76%, respectively. The spread between the Australian 10 year and US 10 year government bond yield narrowed to 0.39%.

In the US, equity markets rallied on the positive prospect that a Trump administration would bring about for American corporates. The Federal Reserve raised interest rates by 0.25%, with a new target range from 0.50% to 0.75% at their December 2016 meeting. The Committee acknowledged the US economy has strengthened considerably with a tighter labour market and buoyant economic climate. Average hourly earnings continued to rise, increasing by 0.4% in December, indicating a sustained monthly wage growth against a backdrop of an increase by 156,000 Non Farm payrolls in December 2016. Wage growth and Non Farm payrolls in the US for 2016 averaged 3.84% and 156,000 growth each month. US manufacturing and services PMI index maintained its strength with improvement in business exports and prices paid within the PMI components.

Crude oil prices rose following a joint effort by OPEC to reduce production and cut supply to the market. Prices stabilised at $56 per barrel by the close of December. OPEC announced cuts to supply for different grades of oil to the Asian region in February 2017. US Baker Hughes rig count increased marginally.

In Europe, the Italian referendum result rejecting economic reform plans resulted in the resignation of the Italian Prime Minister. Rising populism and voter backlash heightens political risks within the Euro region.

In Australia, the labour market improved with full time employment posting marginal gains, while part time employment softened.

As a recap of the 2016 calendar year. Equities produced solid returns of more than 10% over the year. Equity markets rebounded, after the correction early in the year on concerns of a slowdown in China, and the unexpected results of the Brexit vote and US Presidential Election, had only very short-term limited negative impact on markets. Australian equities benefited from the very strong performance of the Resources sector over the year, as commodity prices rallied strongly from recent lows. Internationally, the US, UK and Emerging Markets performed positively, while Europe and Japan were flat for the year.

Fixed interest assets posted moderately positive returns for the year. Australia and US yields rose marginally over the year, while in Europe and Japan, bond yields fell contributing to stronger returns from international fixed income.

Overall, foreign currency detracted from returns over 2016. The AUD weakened modestly against the USD and YEN, with commodity price increases providing a support for the AUD but RBA rate cuts seeming to drive the AUD depreciation. However, the EUR, and most significantly, the GBP, depreciated in response to the Brexit vote.

Listed international and Australian property posted positive returns for the year, but did decline materially in the second half of the year as bond yields rose.

AUSTRALIAN EQUITIES

Australian equities increased in December, closing the month up 4.3%, with both Resources and Industrials posting strong gains.

aus-equities-pp2_dec-2016-snapshot
Source: Frontier Advisors; Monthly Market Snapshot (December 2016)

INTERNATIONAL EQUITIES ($A)

The $A Hedged MSCI World Index rose 2.9% in December, while the unhedged index gained 4.5%, as the Australian dollar weakened. Emerging market equities rose by 2.3% in Australian dollar terms in December

intern-eq-a-pp2_dec-2016-snapshot

Source: Frontier Advisors; Monthly Market Snapshot (December 2016)

 

INTERNATIONAL EQUITIES (LOCAL CURRENCIES)

Major equity markets gained in the month of December, except for China which declined by -4.5%, in local currency terms. markets recorded gains for the financial year to date.

intern-eq-local-pp3_dec-2016-snapshot

Source: Frontier Advisors; Monthly Market Snapshot (December 2016)

 

FIXED INCOME

Australian bonds declined marginally by 0.2%, while global bonds produced marginally positive returns for the month.

fixed-income-pp3_dec-2016-snapshot

Source: Frontier Advisors; Monthly Market Snapshot (December 2016)

 

AUSTRALIAN DOLLAR AGAINST MAJOR CURRENCIES

The Australian dollar (AUD) weakened all major foreign currencies except for Japanese Yen over the month. For the financial year to date, the AUD recorded gains against all major currencies except for USD.

aus-maj-currencies-pp4_dec-2016-snapshot

Source: Frontier Advisors; Monthly Market Snapshot (December 2016)

 

PROPERTY

Australian and global listed property performance posted positive returns of 6.8% and 3.6%, respectively, in December.

property-pp4_dec-2016-snapshot

Source: Frontier Advisors; Monthly Market Snapshot (December 2016)

 

Download this month’s snapshot

 

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NGS Super members are also entitled to a free initial consultation for general advice relating to your personal circumstances through our financial planning service. We also offer low fixed fees for financial plans – no hidden costs or commissions.

For further information, visit our Financial Advice page or to make an appointment, please call 1300 133 177.

IMPORTANT INFORMATION

The information in this article is general information only and does not take into account your objectives, financial situation or needs. Before making a financial decision, please assess the appropriateness of the information to your individual circumstances and consider seeking independent advice from a licensed or appropriately authorised financial advisor. Past performance is not a reliable indicator of future performance.

The information contained in this document has been sourced from Frontier Advisors Pty Ltd, AFSL 241266; “Monthly Market Snapshot” (December 2016). The information contained in “Monthly Market Snapshot” is intended as general commentary and should not be regarded as financial, legal or other advice. Should you require specific advice on the topics or areas discussed please contact NGS Super directly or an appropriate advisor.

Information provided in this blog may have changed since the time of writing. You should confirm the information is current before relying on it.

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