November was a strong month for global markets as investor optimism ran high following a wave of positive economic data and expectations that the US interest rate cycle may be nearing its peak. In particular, the US share market hit its highest level in over four years during the month. The incoming US Federal Reserve Chairman, Dr. Ben Bernanke, also addressed the US Senate Banking Committee and pledged the continuity of the Fed’s current policy strategy of focusing on price stability. It is expected that Dr. Bernanke will equally favour a more formal and transparent inflation targeting strategy. For the month of November, the MSCI World ex Australia Index hedged and unhedged indices both rose 4.4%. Within domestic markets, the S&P/ASX 300 matched the performance of overseas markets and also rose 4.4% during the month.
During November, the RBA released its quarterly Statement on Monetary Policy which raised concerns about the risks of higher inflation from rising oil prices, increases in wages and a more subdued Australian dollar. Despite fears of increasing inflation, the RBA is maintaining a ‘wait and see’ approach and have left interest rates unchanged at 5.5% for the eighth consecutive month. Looking at other economic indicators, the unemployment rate rose to a six month high of 5.2% during November. The job ads and business surveys’ employment plans point to slower job growth in the future, which should help to ease pressure on wages. Consumer sentiment rebounded in November according to the Westpac/Melbourne Institute’s Index, while the National Australia Bank’s business conditions and business confidence surveys fell to its lowest level in three years. Within the Australian market, the S&P/ASX 300 rose by 4.4% in November, driven by lower oil prices and lower bond rates. The best performing sector for the month was Health Care (up 8%), followed by Energy (up 6%), while the worst performing sectors were Telecommunication Services (down 7%) and Consumer Discretionary (down 0.9%).
|
Globally, the US Federal Reserve increased the official Fed Funds rate by 0.25% to 4.00% during the month, which is the twelfth time since June last year that the Fed has implemented a measured increase in the Fed Funds rate. Despite persistent fears of inflation due to higher energy prices, core inflation in the US is still running at a fairly moderate rate. In other parts of the world, the European Central Bank has signalled its intention to raise interest rates in the near future. Data released during the month revealed that China’s inflation rose slightly in October, but still remained low at 1.2% year-on-year, which should pose little threat to continued economic growth. The Japanese economic recovery has continued on course as bank lending continued to expand and the September quarter Gross Domestic Product data was stronger than expected.
Australian fixed interest returned 0.7% during the month, as measured by the UBSA Composite All Maturities Bond Index, as both short and long dated Commonwealth bond yields fell. Global government bonds yields also fell over the month on news that the US interest rates may soon peak. This was the suggestion coming out of the minutes of the US Federal Reserve’s November interest rate setting committee meeting. The decrease in yields lead to a positive return of 0.6% for global fixed interest, as measured by the Lehman Global Aggregate Bond Index (hedged in $A).
The Australian listed property sector posted positive returns during November, with the S&P /ASX 300 Listed Property Index rising 3.4%. Unlisted property, as measured by the Mercer Unlisted Property Index rose 0.5% over the month. |
