The month of June saw US interest rates rise again by 25 basis points in response to continued concern over inflation. Despite uncertainty over inflation and interest rates, the MSCI World ex Australia Index (unhedged) rose 1.4% during the month. The MSCI World ex Australia Index (hedged into the $A) rose 0.6% and underperformed its unhedged counterpart due to the Australian dollar falling against the US dollar and the currencies of Australia’s major trading partners. Australian equities as measured by the S&P/ASX 300 rose by 2.0% over the month of June.
The Australian economy produced mixed results over the month of June. Interest rates were left unchanged following a substantial fall in consumer confidence in May, higher petrol prices and uncertainty over global growth. Business investment fell in the March quarter. However March quarter GDP growth was solid and unemployment is at 4.9%, its lowest level since 1976. The domestic share market was impacted by commodity price volatility and concern over global interest rates but still produced a 2.1% return as measured by the ASX/S&P 200. The best performing sector was Property (up 4.6%), sustained by the sectors defensive qualities, and Consumer Staples (up 2.9%). The worst performing sectors were Telecommunication Services (down 2.2%) and Consumer Discretionary (down 0.7%).
In the US, the Federal Reserve (Fed) raised interest rates from 5.00% to 5.25% but it appears the Fed may have finished increasing interest rates for the near future. In the US inflation rose and there was a fall in metal prices in the commodities market during the month. |
Unemployment in the US is low at 4.6%, slightly below the natural rate of just under 5%. The European Central Bank also raised their cash rate, from 2.5% to 2.75%. Economic data from Europe was generally strong with a rise in economic confidence. The Bank of Japan reiterated it will gradually increase interest rates towards the end of the year. In China, authorities have introduced measures to slow growth in response to data indicating strong investment, production growth and money supply growth.
The increase in Australian bond yields seen over recent months was partially reversed in the first two weeks of June. However weaknesses in equity and commodity markets led to some investors investing in the safer option of government bonds. Overall domestic fixed interest returns were relatively flat for the month, returning 0.17% as measured by the UBSA Composite Bond Index. Internationally, bond yields increased over the month. Returns for global fixed interest were also relatively flat, with the Lehman Global Aggregate Index (Hedged) returning 0.04%.
The Australian listed property sector produced a solid result over June with the S&P ASX 200 Property Accumulation Index returning 6.3%. In unlisted property, two high profile property portfolios were sold, dominating the office sector. There was strong rental growth in the Perth and Brisbane office markets.
Please note that this economic commentary does not constitute advice. |
