Monthly Market Snapshot – October 2017

October saw gains in the global equity markets on the back of positive economic indicators as global growth continued to recover in a synchronised fashion. Global PMI (Purchasing Managers’ Index) surveys continued to improve within expansionary levels. Global corporate earnings growth and commodity prices are also rising.

During the month, the Federal Reserve Open Market Committee (FOMC) left the target federal funds rate unchanged at a range of 1.0% to 1.25%. Apart from the reduction of the central bank’s balance sheet which is currently underway, Jerome Powell has been nominated as the Chair of the Federal Reserve and is expected to assume the leadership role in March 2018. Markets expect Powell to continue to pursue the US central bank’s rather accommodative monetary policy with a focus on addressing low inflation and fiscal policy reforms.

The European Central Bank (ECB) announced an extension of the bank’s quantitative easing (QE) program to September 2018. Despite an improving macroeconomic backdrop on the back of a continued stream of positive key economic data flowing into the Eurozone, the outlook for inflation remains uncertain and falls short to indicate sustained upward growth trajectory. The push for Catalan independence could also be destabilising but it is overall a relatively small impact on the economy.

As widely expected, the Bank of England (BoE) announced a 25bps rate hike for the first time in more than a decade in an attempt to help curb inflation which has risen to its highest level at 3.0% since April 2012, above BoE’s target of 2%.  The BoE stated that any future interest rate increases will be limited and gradual to prevent the economy from overheating. Fears that Brexit could derail the domestic economy remain a major concern.

The outcome of the 19th  National Party Congress (NPC) in China has marked further consolidation of powers for President Xi Jinping. Xi has expressed support to deepen market- oriented reforms and private and larger state firm reforms. The government will aim to balance economic growth, structural reforms, income distribution and financial stability.

The Reserve Bank of Australia (RBA) states that its “forecasts for growth in the Australian economy remains largely unchanged” on improving prospects of the domestic labour market (particularly in full-time jobs) which has driven the recent improvement in consumer confidence. However, current inflation rate at around 1.8% is expected to remain below the RBA’s 2-3% target in light of the weakness in both retail sales and subdued wage growth.

Caution continues to be warranted on the economic outlook given spare capacity in the labour market and subdued wage growth which will be prominent influencers of monetary policy over the next year.

AUSTRALIAN EQUITIES

The S&P/ASX 300 Accum index closed the month up 4.0% with improvements in both the Resources and Industrials sectors at 4.6% and 3.9% respectively. The Australian Small Caps sector also posted strong returns at 6.0% over the month.

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

INTERNATIONAL EQUITIES ($A)

The $A hedged MSCI World Index ex-Australia gained 2.7% in October, while the unhedged index gained 4.3%, as the Australian dollar weakened over the month.

Emerging market equities continued to lead the developed equity markets, gaining 5.9% for the month and 11.7% for the financial year to date.

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

INTERNATIONAL EQUITIES (LOCAL CURRENCIES)

In October, equity markets in Japan, US and Europe gained 8.1%, 2.2%, and 2.2%, respectively.

All major markets posted positive returns for the financial year to date.

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

FIXED INCOME

In October, Australian bonds and global bonds gained 1.1% and 0.5%, respectively.

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

AUSTRALIAN DOLLAR AGAINST MAJOR CURRENCIES

The Australian dollar (AUD) depreciated against all major currencies, particularly against the USD and JPY by 2.3% and 1.7% respectively.
For the financial year to date, the AUD has recorded gains against the JPY, but has depreciated against the Euro, GBP and USD.

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

PROPERTY

In October, Australian-listed property delivered 2.2%, while hedged global-listed property was relatively flat.

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

Download this month’s snapshot

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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” (October 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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