The Consumer Price Index increased by 0.4% in the March quarter to be 1.9% above year-ago levels. Healthcare (+2.2%) and Education (+2.6%) showed the largest increases in the quarter while Clothing and Footwear (-2.0%) and Recreation and Culture (- 0.7%) showed the largest falls. Inflation remains just below the Reserve Bank’s 2-3% target but is showing little sign of a significant break through the target range. Labour force data showed some slowing of recent improvements with the number of people employed increased by only 4,900 in March. Full-time employment decreased by 19,900 while part-time employment increased by 24,800. The unemployment rate was unchanged at 5.5%. The shift from residential to non-residential construction continued to be seen in the ABS’s December quarter Building Activity report. Value of work on new residential buildings fell by 3.1% in the quarter to be 5.4% lower than a year earlier while non-residential work increased by 4.0% to be 14.8% above year-ago levels.
Initial estimates of March quarter GDP showed the US economy grew by an annualised 2.3%, slowing from the December quarter’s 2.9% pace. Possible issues with seasonal adjustment factors have meant that first-quarter GDP figures have been unusually low in recent years and we should not read too much into the slowing in growth from last quarter. US inflation continues its slow grind higher but the extreme concerns earlier this year of a significant inflation breakout do not appear justified by recent data. Headline consumer prices fell 0.1% in March to be 2.4% higher than year-ago levels while core prices increased by 0.2% but are only 2.1% higher than a year earlier. This is likely to remain an area of focus given concerns that tariffs imposed by the Trump administration will lead to increased prices of steel and aluminium which will eventually flow through to final consumer prices. The ISM Prices Index – a survey measuring raw material prices – increased to 79.3 in April, its highest level since 2011.
Positive economic sentiment has taken a hit recently with the ZEW Economic Sentiment Index falling significantly for the second consecutive month. This survey of financial professionals had been around 30 through 2017, varying around this number on a month to month basis. It had maintained a reading around 30 earlier this year, but in March fell to 13.4 with a further fall to 1.9 in April. This sentiment was reiterated by the European Central Bank (ECB) following their April Board meeting where they stated that incoming information pointed to some moderation in growth. Initial estimates of March quarter Eurozone growth showed the economy expanding by 0.4%, a slowing from the 0.7% growth seen in the previous three quarters.
Chinese GDP increased by 1.4% in the March quarter, keeping the year-on-year growth rate at 6.8%. Consumption continues to be a mainstay of overall growth, confirmed by retail sales figures showing 10.1% year on year increase in retail sales. The ongoing trade dispute with the US is yet to show any significant impact on the economic data. The sharp rise in Chinese inflation seen in February was reversed in March when prices fell by 1.1%. As a result, over the past 12 months, prices have increased a reasonable 2.1%.
Analysts are starting to focus on the impact of the 2020 Olympics on the Japanese economy. Olympic Games related investment is likely to boost economic growth with the Bank of Japan estimating it will add around 0.5% to growth through 2018-19. Increased tourism is likely to provide a further boost around the time the Olympics are held, but there is a concern that once this fades, growth could falter given that opportunities for further construction activity may be limited.
The S&P ASX200 Accumulation Index ended the month increasing by 3.9% despite the continuing trade war between China and the US with Donald Trump threatening to implement more trade tariffs on China early in the month and the Financials sector continuing to be affected by the Royal Commission.
The best performing sectors in April were Energy (+10.8%), Materials (+7.6%) and Health Care (+7.4%). Worst performing sectors in the month were Telecommunications (+2.0%) and Financials (+0.2%). Chinese president Xi Jinping’s announcement that he is committed to open trade and improving conditions for foreign companies boosted local markets while the strong performance in energy stocks was fuelled by rising oil prices.
Strong performers in the ASX100 included Healthscope Limited (+25.6%), Santos Limited (+21.1%) and South32 Limited (+15.5%). The worst performing stocks were AMP Limited (- 19.0%), Perpetual Limited (-13.4%) and IOOF Holdings Ltd (-11.9%). AMP’s admission that shareholders and the profits of the company were more important than complying with the law and its customers was responsible for the sudden drop in its share price.
The MSCI World Index managed to post a positive result for April with a 1.0% return, with an unhedged return of 2.0% due to the fall in the $A. European markets turned around lacklustre performance from last month with France’s CAC40 Index (+6.8%), German DAX Index (+4.3%) and the Italy MIB30 Index (+7.0%) all achieving healthy returns. A contributing factor to this was positive expectations for first quarter financial results for US and European corporates. Investors have remained optimistic despite geopolitical concerns like the trade war between the U.S. and China and US-led missile attacks in Syria. Asian markets had mixed results with the Singapore Straits Times Index (+5.4%) and the HK Hang Seng Index (+2.4%) achieving positive returns while the Shanghai Composite (-2.7%) continued to fall for the third consecutive month. Early in the month in the US market, investors’ concerns about an intensifying trade war between China and the United States have continued as there continues to be uncertainty around the impact it could have on global economic growth. However, Xi Jinping’s promise at the Boao Forum to cut import tariffs helped boost US stocks and buoyed global markets.
The Barclay’s Global Aggregate hedged in $A (- 0.4%) had a negative return in April following the previous month’s 0.8% return. The Bloomberg Composite Bond Index also returned -0.4%. Australian 10-year and 3-year government bond yields as well as US 10-year and 2-year government bond yields all increased. The US 10- year Treasury rate was above 3% in April for the first time since 2014.
The S&P/ASX 200 AREITs index posted a healthy return of 4.5% in April. For the first time since November 2012, dwelling values of the combined capitals have posted an annual decline (-0.3%) according to CoreLogic data. Both Sydney and Melbourne declined 0.4% in price during April while Brisbane also fell 0.1%. All other capital cities posted a positive return with Hobart (+1.2%) being a standout performer.
The Australian dollar ended the month at US$0.7530 compared to US$0.7680 in March. Iron ore prices rebounded slightly by 3.1% to US$67 after a massive drop last month. Brent Oil has continued to make gains increasing 7.7% to US$74.68 a barrel due to tensions in the Middle East causing supply issues. US sanctions against Russian nickel producers coupled with supply issues caused its price to increase by 2.6% in April. Zinc (-4.8%) and gold (-0.8%) both fell while copper (+1.4%) had a small gain.
Key market returns at 30 April 2018
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