While many markets took a breather at the beginning of the month, a steady slew of generally positive macro data and corporate earnings releases provided the backdrop of a synchronised advance in performance from many asset classes over the period.
Global equities, as measured by the MSCI World ex Australia rose 1.6% on a hedged basis and 3.2% in unhedged terms. The U.S equity market continued to power ahead on the back of strong indications that President Trump’s tax reform package will be approved. Japan also outperformed as investors remained upbeat about a rise in consumption and inflation. Europe underperformed as political uncertainty in Germany, Spain and Italy prompted some investors to collect profits. Asia and emerging markets also underperformed.
Locally, the Australian equity market advanced 1.6% for the month. Small caps outperformed their large counterparts, while energy linked and interest rate sensitive sectors were the key highlights from an industry perspective. Banks share prices came under pressure following rising internal and external political pressure, Malcolm Turnbull announced a royal commission into the banking sector.
The RBA kept the cash rate on hold at 1.5%. Sluggish wage growth prompted many investors to temper any future rate hike expectations in the near term, flattening the yield curve and pushing the 10yr bond rate down to 2.50%. Other macro data was generally positive, particularly around non-mining capex and non-residential building approvals.
Globally, US bond rates shifted modestly higher as Jerome Powell was officially nominated by President Trump to serve as the next Federal Reserve Chairman. Elsewhere, low inflation and accommodative forward guidance from central banks helped generate positive returns from many bond markets, with the Bloomberg Barclays Global Aggregate Index rising 0.2% for the month.
Within commodities, the price of oil rose as production cuts from OPEC and non-OPEC producers have helped reduce inventories and created a more evenly balanced demand / supply equation at this point in time.
The $A weakened modestly against the $US for the month, closing at $0.7566.