Monthly Commentary – MARCH 2018

Developments in the global economy

The US Federal Reserve increased the fed funds rate by 25 basis points in March citing continued labour market strength and improved economic conditions. In contrast, the Reserve Bank of Australia chose to leave official rates unchanged at 1.5% driven in large part by low inflation and uncertainty surrounding household consumption.



Australia’s real Gross Domestic Product (GDP) increased by a seasonally adjusted 0.4% in the December quarter to be 2.4% above year ago levels. This follows a 0.7% rise in the September quarter. The overall result shows the Australian economy stuck in a holding pattern since 2013 of around 2.5% growth. While not an overly negative outcome, it has meant that growth has been insufficient to make a significant dent in the unemployment rate, which was reported at 5.6% in February. Household consumption increased by 1.0% in the quarter, a strong result given ongoing concerns around wages growth and consumption spending. However, it should be noted there has been a recent pattern of a weak quarter of consumption spending growth followed by stronger quarter that may be suggestive of continued uncertainty on the part of consumers. Non-dwelling construction fell 8.0% in the quarter but remains 8% above year ago levels, while investment in machinery and equipment increased by 3.3% to be 8.7% above year ago levels. The Reserve Bank of Australia kept official cash rates unchanged at 1.5% at their April meeting.


The US Federal Reserve (Fed) increased the fed funds rate by 25 basis points to 1.50-1.75% at its March meeting as expected. The Fed cited improved economic conditions and continued labour market strength. In line with these views, the Fed raised its growth forecast for the US economy to 2.7% from 2.5% for 2018 and 2.4% from 2.1% for 2019. Another two rate hikes are expected in 2018, based on projections from the Federal Open Market Committee (FOMC) members and current fed fund futures pricing. Data releases on labour markets, consumer confidence and the manufacturing sector suggest that US economic momentum shows few signs of faltering.


The European Central Bank (ECB) left official rates unchanged at zero at its March meeting, in line with market expectations. The press conference following the decision provided some insight into the ECB’s thinking with muted price pressures a key theme supporting the ‘on-hold’ policy. The recent strength of the Euro was noted; however, this did not seem to constitute a major source of concern. Europe-wide business confidence indicators have eased back in recent months but remain high compared to recent history. The Markit manufacturing PMI fell to 56.6 in March from 58.6 a month earlier but is still above readings from 2012 to 2016 when the PMI averaged around 50. Similarly, the EU Business Climate Indicator produced by the European Commission fell to 1.34 from 1.48 in February.


Following a series of subdued inflation results, consumer prices spiked markedly in February, increasing by 1.2% following a 0.6% rise in January. Over the year, prices have increased by 2.9% – a four year high. A 4.4% increase in food prices was the main culprit with fresh vegetables increasing a massive 17.7% in the month. The Chinese Government reiterated its economic growth target of 6.5% at the National People’s Congress in early March, marginally lower than the 6.9% growth outcome for 2017.


The final estimate of December quarter GDP showed a 0.4% increase from the previous quarter, significantly above the initial estimate of 0.1% rise. Much of the upward revision was due to better business spending than previously reported. A 0.1% increase in consumer prices in February saw the inflation rate rise slightly to 1.5%.


Developments in financial markets

Equity markets again came under pressure in March on investor uncertainty prompted by the announcement of US tariffs. Unlike February, when both equities and fixed interest were impacted, this setback was limited to equities. In fact, despite the US rate hike, fixed interest posted robust returns in the month as inflation concerns eased.


Australian shares

The S&P ASX200 Accumulation Index has ended the month decreasing by 3.8%, with the resources component suffering a greater fall of 4.4%. The announcement of US tariffs being imposed on imported steel and aluminium saw investor confidence in mining stocks fluctuate until it was announced Australia was granted an exemption from US tariffs. The Royal Commission continued to have a negative effect on the Financials sector with all four major banking stocks posting negative returns.

A-REITs (+0.1%) was the only sector that posted a positive return while the worst performing sectors were Telecommunications (-6.1%), Financials (-5.8%) and Materials (-4.3%). Telecommunications has been the worst performing sector for the second month running.

The strongest performers in the ASX100 were GrainCorp Limited (+6.3%), Evolution Mining Ltd (+5.9%) and Domino’s Pizza Enterprises (+5.9%) which managed to recover slightly after being one of the worst performing stocks last month. The worst performing stocks were Qube Holdings Ltd (-11.0%), Fortescue Metals (-11.9%) and Bank of Queensland (-13.2%).

International shares

The MSCI World Index fell 2.4% in March continuing the trend of poor performance of international markets in February. US stock prices suffered losses later in the month due to a technology stock sell off caused by data access concerns from Facebook and trade war concerns. European markets also performed poorly with the France’s CAC40 Index (-2.9%), Germany’s DAX Index (-2.7%) and the Italian MIB30 Index (-0.9%) all posting negative returns. Asian markets also posted negative returns with the Shanghai Composite (-2.8%), Singapore Straits Times Index (-2.6%) and HK Hang Seng Index (-2.4%) all suffering losses.

President Trump’s announcement of import tariffs being imposed on steel and aluminium sparked fears of a trade war with China and had a negative effect on US stocks. Speculation also rose later in the month after sanctions were placed on goods and investment from China. However, there was some recovery near the end of the month with the release of reports the US and China were willing to renegotiate the tariffs.

Fixed Interest and Cash

US bond yields reversed February’s rise while European yields again moved lower as inflation concerns eased in line with a normalisation in US wages and still low European inflation. The Barclay’s Global Aggregate hedged in $A returned 0.8% in March following the previous month’s -0.2%. Australian 10-year government bond yields also moved lower, while shorter dated bonds were largely unchanged. The Bloomberg Composite Bond Index also returned 0.8% in March.


The S&P/ASX200 AREITs index returned 0.1% in March and was the strongest performing sector in the Australian share market. Despite this rise in March, over the past three months, the sector has lost 6.4% in value. CoreLogic data showed that national dwelling values were relatively unchanged in March with a 0.2% fall in dwelling values in capital cities.

Currency and commodities

The Australian dollar ended the month at US$0.7680 compared to US$0.7762 a month earlier, with weaker commodity prices and widening interest rate differentials driving the decline. Iron ore prices dropped 19.3% to US$65 due to the effects of the US and China trade war. Zinc (-5.6%) and copper (-3.1%) both continued to fall while gold (0.5%) had a small gain. Brent Oil gained 7.3% to US$69.3 per barrel.

Key market returns at 31 March 2018

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Fortress Financial Solutions founder Chris Black is an award-winning financial planner based in Toowoomba who specialises in superannuation, investing, business succession, cash flow management, retirement planning and personal insurances (including life insurance, income protection, total permanent disability and trauma insurance).

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