Monthly Commentary – MARCH 2019

Developments in the global economy

Inflation pressures globally have eased substantially in contrast to concerns held early in 2018. This is a mixed blessing as it provides some cover for the US Federal Reserve with respect to putting further rate hikes on hold but likely reflects the slackening pace of growth. While the global growth pulse has softened it is best described as lacklustre rather than calamitous.



The National Accounts released early in the month showed the Australian economy grew by 0.2% in the December quarter to be 2.3% larger than a year earlier. Strong growth early in 2018 has given way to two consecutive quarters of relatively weak growth. More recent releases continue this trend of lacklustre economic data. Households remain reluctant spenders with retail sales increasing by a seasonally adjusted 0.1% in January following a 0.4% decline in December. The Westpac/Melbourne Institute consumer sentiment survey reinforced this weakness with the index falling 4.8% to 98.8 in March from 103.8 a month earlier. A reading below 100 means that pessimists outweigh optimists. Consumer weakness is slightly at odds with labour force data which saw the unemployment rate fall to 4.9% in February from 5.0% a month earlier but the rise of part-time work and subdued wages growth helps explain the divergence. There was some better news in the construction sector with building approvals increasing by a seasonally adjusted 2.5% in January, but the trend remains resolutely negative with approvals 28.6% lower than year ago levels.


US labour market statistics have been volatile recently and few are reading too much into the 20,000 increase in non-farm payrolls in February. This follows an upward revision to a 311,000 gain in January. Further muddying the water was the fall in the unemployment rate to 3.8% in February from 4.0% a month earlier. US inflation has been contained over the past six months providing the US Federal Reserve with some breathing room and justification for halting the previous rate rise trajectory. Core inflation increased by 0.1% in February to be 2.1% above year ago levels. Core inflation had accelerated to 2.4% in mid-2018 but has been at or below 2.2% since then.


Recent weaker than expected economic data has prompted the European Central Bank (ECB) to provide revised guidance on the likely path of monetary policy. At its March meeting, the ECB stated that it now expects key interest rates to remain unchanged at least until the end of 2019. Consistent with this, they cut their GDP growth forecast for 2019 to 1.1% from 1.7% previously and to 1.6% from 1.7% for 2020. Inflation is also expected to be significantly lower at 1.2% for 2019. Other economic data reinforced the weaker outlook with employment growth at 1.3% and the unemployment rate stuck at 7.8%. Consumer and business confidence remained at subdued levels.


Chinese inflation increased by 1.0% in February following a 0.5% rise in January. However, these figures give a misleading view of inflation pressures with consumer prices only increasing by 1.5% year-on-year. Producer prices are even more subdued, falling 0.1% in February to be 0.1% above year ago levels.


The tone of recent Japanese data remains soft. The Tankan survey of sentiment for large manufacturers fell to 12 from 19, erasing all the gains seen over the past 12 months. In its Statement on Monetary Policy, the Bank of Japan provided a relatively sanguine view of the economy suggesting the economy was ‘expanding moderately, with a virtuous cycle from income to spending operating’ but noted that a slowdown was evident in overseas economies which had impacted Japanese exports.


Developments in financial markets

Bond yields in the US and Australia moved substantially lower in March, prompting fears that this was a harbinger of a significant growth slowdown, if not an outright recession. Despite this, equities managed to build on February’s strong returns. An easing of trade tensions and continued positive guidance from the US Federal Reserve helped sentiment.


Australian shares

The S&P/ASX 200 Accumulation Index returned 0.7% in March following a 6.0% increase in February. Over the past 12 months, Australian equities have returned 12.1%, with the sharp decline at the end of 2018 now seemingly a distant memory. Resources again outperformed returning 2.0% in the month or 28.2% over the past 12 months. However, small caps did not share in the positive trend, retreating 0.1% in March. The best performing sectors were AREITS (+9.8%), Telecommunications (+4.0%) and Consumer Staples (+3.9%) which reversed the previous month’s decline. The worst performing sectors were Energy (-4.1%), Financials (-2.7%) and Utilities (+1.3%). At the stock level, the best performing stocks in the ASX100 in March were Fortescue Metals (+17.3%), Charter Hall (+16.7%) and JB Hi-Fi (+15.0%). The worst performing stocks included AMP (-11.0%), Soul Pattison (-10.6%) and Whitehaven Coal (-8.0%).

International shares

The MSCI World ex Australia Index (A$) returned 1.5% in March following February’s bumper 5.6% increase. With currency returns included international shares have marginally outperformed Australian shares over the past 12 months with a return of 12.3%. Emerging markets posted a similar return to developed markets in March but over the past 12 months have returned -1.9%, significantly below developed markets.

Over the month, the S&P 500 returned 1.9% building on the 3.0% seen in February. Easing concerns around US/China trade helped sentiment while ongoing growth uncertainties weighed on sentiment. Despite ongoing Brexit uncertainty, the UK FTSE 100 index returned 3.3% in March. MSCI Europe was negative overall but the major markets of Germany (+0.1%) France (+2.1%) and Italy (+3.0%) posted positive returns, albeit Germany was only marginally positive. The Shanghai Composite posted another strong 6.1% increase following February’s massive 13.8% increase.

Fixed Interest and Cash

US bond yields fell sharply in March with the US 10-year government bond ending the month at 2.41%, having earlier moved just below the 2.4% level. The move was prompted by increasing concerns about the US growth trajectory and lower than expected inflation. Australian yields also moved lower ending the month at 1.8%. As a result, returns to fixed interest were boosted with the Bloomberg AusBond Composite Bond Index posting a 1.8% return in the month, while global fixed interest as measured by the Bloomberg Barclays Global Aggregate Bond Index hedged in $A lagged slightly and returned 1.7% in March.


AREITS were boosted by lower bond yields and improved sentiment, returning a strong 6.2% in March and significantly outperforming the broader market. Australian property trusts made up five of the top ten performing stocks in March. Global REITs also benefited from lower bond yields and posted a 3.9% return but were unable to match the stellar returns of their Australian counterparts.

Currency and commodities

The Australian dollar was largely unchanged through March ending the month at US$0.7096 from US$0.7094 a month earlier. This was despite significant changes in bond yields during the month. Muted changes in commodity prices may have played a part in the currency’s lack of movement. Iron ore prices increased by 1.8%, ending the month at US$86.5/mt while the gold price fell 1.8% to US$1295.4. Other metals were mixed with zinc increasing by 6.6% while lead fell 6.1%. Other price changes were less extreme with copper (-1.0%), tin (-1.4%) and nickel (-0.6%) all falling by low single digits. West Texas Intermediate (WTI) oil prices increased a further 5.1% following February’s 6.0% rise.

Key market returns at 31 March 2019


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