Monthly Market Snapshot – February 2017

In February, economies of the major developed countries continued to produce strong economic survey data. A policy rate hike is expected in the US given increasing inflationary pressures and the low unemployment rate, and Europe is also sending a positive signal that it is nearing the end of expansionary monetary policy. Australia regained robust economic growth in the fourth quarter of 2016, and the UK and Japan increased growth expectations for 2017. Markets reacted positively to the continued economic growth across the world. In the US, Europe, UK, and Australia, equities gained 2% to 4% for the month of February, while equities were relatively flat in Japan. Bond markets were also flat across the world.

Domestically, GDP rebounded strongly, posting 1.1% growth during the fourth quarter of 2016, after a negative shock in the September quarter. The well above market consensus outcome was driven by resource exports, household consumption, and investment by government and business. The negative impact on economic growth of declining mining investment appears to be ending. The current account deficit narrowed sharply, largely due to prices of commodities, and is at its lowest level since 1980. Equities’ earnings expectations for the financial year have continued improving, with half year earnings reporting being overall positive. Australian equities market earned 2.2% to the month end, while the Resources sector retracted by -3.4%.

In the US, equities rallied 3.7% in February against the backdrop of strong job market figures (4.7% unemployment rate), improving wages growth and inflation, and positive Manufacturing and Services PMI (Purchasing Managers Index) survey results. All of which is supportive of the US Federal Reserve’s continuing to tighten monetary policy. Markets are expecting three rate hikes in 2017, including at its mid-March meeting, with a 90% probability.

Both in Europe and Japan, after a near decade long extraordinary accommodative measures to boost the economy, central banks have sent signals to the investors that the economies are expected to be shifting from a deflationary phase to inflationary phase in the coming years. In Japan, core inflation returned to positive territory.

In the UK, the Bank of England released its more optimistic forecast for the country’s economic growth for 2017 of 2%, revised up from 1.4% in November. Inflation of 2.7%, which is above the bank’s 2% target, is forecast for 2017, largely attributed to the weaker sterling.

China had an unexpected trade deficit in February as imports surged while exports fell, largely due to companies’ scaling back operations during Lunar New Year holidays. However, both Manufacturing and Services PMI survey results continued to point to the expansionary direction in February, indicating continued growth in the economy. Strong inflationary pressures driven by recovering commodity prices contributed to an increase of the producer prices index by 7.8% year-on-year during the month. The Chinese government lowered its annual GDP growth target to 6.5%, from a range between 6.5% and 7%, for the final year of Xi Jinping’s first term, intending to focus on quality of growth, which is in line with its ongoing reform efforts. In addition, the Chinese government reaffirmed its policy to limit capital outflows.

In property markets, both Australian and global listed property rebounded in February, posting 4.1% and 3.3% returns, respectively.

AUSTRALIAN EQUITIES

Australian equities rose in February, closing the month up by 2.2%, while the Resources sector decreased by -3.4%.

 

Source: Frontier Advisors; Monthly Market Snapshot (February 2017)

INTERNATIONAL EQUITIES ($A)

The hedged MSCI World Index rose 3.2% in February, while the unhedged index rose by 1.5%, as the Australian dollar strengthened over the month. Emerging market equities rose by 1.8% in Australian dollar terms.

Source: Frontier Advisors; Monthly Market Snapshot (February 2017)

INTERNATIONAL EQUITIES (LOCAL CURRENCIES)

Major equity markets’ performance was strong across the world in February, especially with US equities up by 3.7%, except for Japanese equities which were flat. All markets have produced a double digit return for the financial year to date, with Japanese equities being particularly strong in local currency.

Source: Frontier Advisors; Monthly Market Snapshot (February 2017)

FIXED INCOME

Australian bonds were flat in February producing a 0.2% return.  Global bonds had positive month with the composite index rising 0.9% during the month.

Source: Frontier Advisors; Monthly Market Snapshot (February 2017)

AUSTRALIAN DOLLAR AGAINST MAJOR CURRENCIES

The Australian dollar (AUD) appreciated against all major foreign currencies in February.

For the financial year to date, the AUD hasrecorded gains against all major currencies, against the USD.

Source: Frontier Advisors; Monthly Market Snapshot (February 2017)

PROPERTY

Australian and global listed property had a strong gain in February increasing by 4.1% and 3.3%, respectively.


Source: Frontier Advisors; Monthly Market Snapshot (February 2017)

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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” (February 2017). 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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