Your Market Update - November Summary
The ASX 200 Accumulation Index fell 1.3% in October. Despite hitting a new record high (8,355.9 points) midway through October, by month-end the Index had recorded its worst month since April.
Economic data strengthened the view that there will be no interest rate cuts from the RBA before year-end. Uncertainty abroad, particularly prior to the US Presidential election, also weighed on the market.
Sector returns were broadly negative, with only Financials (+3.3%), Health Care (+0.9%), and Communications (+0.8%) recording gains. Of the eight negative sectors, Utilities (-7.2%), Consumer Staples (- 7.0%), and Materials (-5.2%) were the greatest laggards.
Monthly retail sales data came in below expectations, indicating a cautious consumer. Underlying inflation remained sticky, and strong employment numbers diminished the likelihood of the RBA cutting interest rates in 2024. This news benefitted Financials, with all ‘Big Four’ banks posting positive returns. AGL Energy (ASX: AGL) led the declines in the Utilities sector, as broker downgrades led to a sell-off of the company’s shares.
Meanwhile, weakening profit guidance from Woolworths (ASX: WOW) led to a decline in its share price, dragging down Consumer Staples returns. After a run of gains, uncertainty overseas and data from the local economy led to a weak month for the ASX 200.
Developed Markets outperformed Emerging Markets in October as global equity markets slowed down ahead of US election results and interest rate announcements. Developed markets gained 3.9% (MSCI World ExAustralia Index (AUD)) versus a 1.2% return (MSCI Emerging Markets Index (AUD)). US markets fell in October as the S&P500 and NSADAQ Composite ended a five and three-month run respectively.
Despite the continued expansion of US economic growth and moderation in inflation, increased political uncertainty from the upcoming election played on investor sentiment, with increased scrutiny being placed on policy stances from both parties. Market volatility increased as a result of the uncertainty and the S&P500 declined -0.9% and the Nasdaq Composite lost -0.50% (in local currency terms).
Japan was an exception to the general market decline across develop nations. The Nikkei 225 Index recorded a 3.1% increase (in local currency terms) as Bank stocks rose on the back of rising interest rates, while a weaker Yen helped boost exporting sectors of the market. However, Semiconductor manufacturers dropped as weaker earnings prospects dampened sentiment. China’s recent gains retreated as stimulus-driven momentum dissipated. The CSI 300 Index fell -3.0% and the Hang Seng Index fell -3.8% (in local currency terms).
In September, the Australian bond market remained stable, while globally, falling yields resulting from investor reactions to central banks cutting interest rates led to positive returns for the month. Bond investors experienced a less favourable month than anticipated, as global market risk perceptions declined, driven by upcoming U.S. elections and easing inflation figures.
October’s CPI results showed a decrease in the annual inflation rate, which was welcome news for the RBA in its efforts to keep headline inflation within target bands. However, core inflation, which excludes volatile items that could distort the data (including recent adjustments for government subsidies), indicated that underlying inflation remains relatively high. The RBA feels no immediate pressure to alter monetary policy, as inflation trends appear favourable, though they believe further action may be necessary if adjustments are warranted.
U.S. market developments affected the Australian market, leading to increases in the 10-year and 2-year government bond yields by 50 basis points and 40 basis points, respectively. With US being a big driver of the global bond market, investors began shifting from fixed income to riskier asset classes, influenced by post-election expectations for more inflationary policies. Following a 50 basis point rate cut in the October FOMC meeting, markets anticipate a possible additional cut in November, given the ongoing year-over-year decline in inflation and a softening labour market. Against this backdrop, yields on U.S. government bonds rose by 50 basis points for the 10-year and 54 basis points for the 2-year.
U.S. market developments affected the Australian market, leading to increases in the 10-year and 2-year government bond yields by 50 basis points and 40 basis points, respectively. With US being a big driver of the global bond market, investors began shifting from fixed income to riskier asset classes, influenced by post-election expectations for more inflationary policies.
Following a 50 basis point rate cut in the October FOMC meeting, markets anticipate a possible additional cut in November, given the ongoing year-over-year decline in inflation and a softening labour market. Against this backdrop, yields on U.S. government bonds rose by 50 basis points for the 10-year and 54 basis points for the 2-year.
The S&P/ASX 200 A-REIT Accumulation Index TR moderated in October, finishing the month down 2.5%. Despite this, the index is up 23.0% YTD. Global real estate equities continued the slowing trend observed in September (represented by the FTSE EPRA/NAREIT Developed Ex Australia Index (AUD Hedged)) falling 3.75%. Australian infrastructure also declined, with the S&P/ASX Infrastructure Index TR falling 4.3%. October saw muted activity in Australia on the M&A front across the A-REIT sector.
The Australian residential property market experienced an increase of +0.3% Month on Month (as represented by CoreLogic’s five capital city aggregate). Perth continued its strong run and was the biggest riser (+1.4%, 22.6% YoY), followed by Adelaide (+1.1%) and Hobart (+0.8%), which reversed its negative trend. In contrast, Melbourne continued to experience a fall in value (-0.2%) alongside Canberra (-0.3%) and Sydney (- 0.1%) while Darwin (-1.0%) was the worst performer.
