Market Summary | July 2019
MARKET OVERVIEW
Markets had a relatively strong July with most of the major indices returning positive results. Positive returns were on the back of improved sentiment towards global trade negotiations, which was inevitably thrown out of the window in early August.
We also saw world central banks continue to offer support to economies in an attempt to address economic uncertainty, which of course was well received by investors.
UNITED STATES
US Markets enjoyed a brief time-out from trade negotiations throughout July, posting solid return numbers for the month. The Federal Reserve cut the cash rate for the first time since 2008, dropping the rate a quarter of a percent from 2.25% to 2.00%, citing low inflation and economic uncertainty. However, the cut did not relieve any tensions between Donald Trump and the Federal Reserve, with the US president continuing to criticise the central bank for not providing him with adequate support.
The US market remains a bright spot for global investors, with July seeing further gains in the Information Technology (+3.2%) and Communications (+3.0%) sectors, pushing the markets into new territory in late July. The USD has continued to climb against the AUD pushing returns even higher in local terms.
The S&P 500 Index (USD) returned 1.31%
The Dow Jones (USD) returned 0.99%
ASIA
The Hong Kong/China protests continued throughout July following the proposal of a law, which would enable China to extradite Hong Kong residents and visitors to mainland China. If passed, the law would fatally undermine Hong Kong’s culture of having “one country and two systems” which could result in disastrous affects for the Hong Kong economy.
Despite being mixed, the data coming out of China throughout July remained in line with expectations. GDP growth slowed to 6.2% for the June quarter, the lowest level since 1992. Despite a weaker GDP growth number, many had forecasted the Chinese economy to be performing much worse.
Tax cuts earlier in the year have helped shield the economy from the impact of the trade war, whilst strong results from the retail and industrial sectors kept GDP growth at a respectable level. A surge in automotive sales ahead of a change to emission standards also underpinned economic results.
The Hong Kong Hang Seng PR Index (HKD) fell 2.68%
The Nikkei 225 PR Index (JPY) returned 1.15%
The Shanghai Shenzhen CSI 300 PR Index (RMB) returned 0.26%
EUROPE
Boris Johnson kissed the Queen’s hand and became the new Prime Minister of the UK taking over from Teresa May. The Brexit deadline has also been pushed back to October 31st but that date is now quickly approaching, leaving Boris with much to do.
The European car industry continues to show weakness as car sales dropped by over 7% for the month of June, the biggest fall since December. Europe remains mired in disappointing economic data and persists as a deep value play.
The UK’s FTSE 100 PR Index (GBP) returned 2.17%
The German Dax (EUR) fell 1.69%
AUSTRALIA
The minutes from the RBA’s July meeting noted that low wages growth and spare capacity in the labour market may result in room for further rate cuts in the not too distant future. On the positive side, Australia’s commodity prices remain firm and the mining sector is currently experiencing a ‘mini-boom’. Iron ore moved to above US$120 per tonne and gold has broken into all-time highs in Australian dollar terms, encouraging increased exploration and production of the precious metal.
Despite a rise in commodity prices, the Australian dollar is under pressure from the narrowing interest rate differential with the US, falling 2.0% in July.
Australian shares pushed higher through July on the back of improving sentiment around global trade and a rallying US market. The S&P/ASX 200 Index returned 2.94% over the month, pushing into uncharted territory.
The gold sector led the way with strong gains from Resolute Mining (+32.96%) and St Barbara (+25.85%). The combination of a falling Australian dollar and a rising gold price delivered large returns for Australian miners. Consumer Staples (+9.8%) led the gains in July, with the China-exposed A2 Milk (+23.6%) and Bellamy’s (+21.5%) the major beneficiaries.
Whilst uncertainty and volatility are expected to remain in global markets, there will be ramifications for Australian shares, as central banks continue to drive speculation surrounding additional global monetary policy support.
MARKET RETURNS (LAST 12 MONTHS)
Recent performance has pushed the return of Australian equities ahead of International equities. Performance from equities remains in positive territory whilst returns from Cash remain somewhat suppressed.
The above graph summarises the performance of the major financial markets and gives you an indication of how these markets performed over the last 12 months. The graph does not reflect your actual portfolio performance.