Market Summary | November 2017

MARKET OVERVIEW

Global share markets made strong gains in November. US equities gained, supported by investor optimism that proposed tax reforms would improve corporate profitability. Contributing to the gains were yet more encouraging US earnings results, with the likes of Apple, Cisco and retail giant Wal-Mart all providing updates which beat analysts’ lofty expectations.

Sentiment in November was further boosted by a series of improving economic data in Europe and Japan, stronger oil prices and expectations Trump’s nominee to lead the US Federal Reserve, Jerome Powell, will maintain his predecessor’s path of gradual interest rate hikes.

The real drama though, was happening in Venezuela, where the country with the largest proven oil reserves in the world finally ran out of money and defaulted on its sovereign debt

UNITED STATES

The Senate Budget Committee has approved the Republican tax bill, but the vote still needs to be passed by the full chamber. While the Senate has been successful in moving its version of the Tax Cuts and Jobs Act out of the Finance Committee, after a week of being introduced, the biggest challenge will be when both chambers have to agree on the details of the final bill, before obtaining final sign off from Donald Trump. Adding to the challenges are a number of Republicans who have concerns on some of the aspects of their own proposed bill.

The Federal Reserve stated early in the month that a December rate hike remained likely, with the central bank citing “solid” economic growth in its latest comment. This was confirmed during the middle of the month as the Federal Reserve raised the target range from 1.25 percent to 1.5 percent. At the same time, the federal reserve sharply raised its economic growth forecast for 2018 .

FAR EAST

The good news for the Far East in November was that President Trump came to visit, spending 12 days in the region and apparently doing $300bn of trade deals, including the first major investment by a Chinese energy firm in the US. The President struck a much more peacemaking tone on this trip, saying that he did not blame China for unfair trade with the US, and recognised that China had been “working hard” to benefit its people.

President Xi Jinping will attempt to stay on for a third 5-year term in 2022, a move which would imply that he will attempt to curb many of the excesses in the Chinese financial system over 2018 and 2019, before attempting to boost the economy later in his term.

Across the China Sea, the Japanese economy was enjoying its longest growth streak since 2001, having now expanded for seven quarters in a row. This comes after four continuous years of economic stimulus from the government, with an increased demand for Japanese exports offsetting a slowdown in domestic demand.

EUROPE

The big story in Europe was political, not economic, as talks on forming a coalition government in Germany collapsed, leaving Angela Merkel facing her biggest challenge in 12 years as leader. In Italy the electoral campaign for next year’s general election has revealed a fragmented picture and growing support for anti-establishment parties. In Spain the turmoil created by the referendum in Catalonia could also lead to new regional elections soon.

After another month of press speculation, it appears that a deal may have been reached on the UK’s ‘divorce settlement’ with the EU. Depending on which paper you read, the figure is anywhere between €40bn and €60bn but the consensus seems to be somewhere in the middle. The BBC reported that it ‘understands’ a figure of €50bn (£44bn) has been agreed on, as Theresa May finally managed to secure the agreement of dissenters in the Cabinet.

AUSTRALIA

The Australian economy grew at just below its trend growth rate in the September quarter, supported by a boost in consumer spending. While advanced economies including the US, Europe, Canada and the UK have begun the task of tightening policy, monetary conditions remain expansionary in Australia.

The RBA left the cash rate unchanged at 1.50% at its early December policy meeting and the statement accompanying the decision; the minutes of the meeting and the quarterly Monetary Policy Statement all indicated no change in the cash rate is likely in the near term.

MARKET RETURNS (LAST 12 MONTHS)

Markets have had a positive 12 months. Returns have been positive in all growth asset classes. Equity markets generally have performed well while fixed income and cash returns remain at historically low levels. The month of November provided positive returns across the asset classes with strong performances from both International and Australian equities

Note: 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.