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Market Wrap

Markets rallied on rate cuts…

• The rally from December lows resumed in June with most equity markets up for the month.

• Global shares were up 5.9% and 5.3% in hedged and unhedged terms, respectively.

• Domestically, Australian shares lagged international markets this month with 3.7% performance in June.

• Australian communication shares rallied led by strong performance in Telstra (ASX: TLS) while property-exposed stocks such as REA Group (ASX: REA) benefitted from falling interest rates and an uptick in property market sentiment.

• The Australian dollar (AUD) rose against major currencies as the prospect of easing monetary policy stances globally saw a bid for the Australian dollar particularly versus the Federal Reserve stance previously to keep rates on hold (which had made the US dollar relatively more attractive. • Fixed income and bond substitutes such as listed property rose in June both domestically and globally.

• International fixed income was up on the prospect of additional central bank easing. The prospect of falling interest rates makes existing bonds more attractive so much so that almost 25% of the Barclays Global Aggregate is offering a negative yield. Disappointing PMI results added to fears of weaker global growth as well driving bond yields lower. With disappointing economic news…

Globally

• Chinese economic numbers disappointed expectations with weaker than expected industrial production and manufacturing PMI in contractionary territory.

• Global business surveys pointed to weaker growth with the Markit Global Manufacturing PMI remaining in contractionary territory.

• The US Federal Reserve left interest rates on hold but took a dovish tone in recent remarks and projections seeing markets price in rate cuts (with bond yields falling as a result) Locally

• The Reserve Bank of Australia (RBA) responded to its labour market concerns and market pricing by cutting rates by 0.25% in early June and again by 0.25% in early July. This confirmed market expectations that saw bonds be bid up and yields fall.

• The unemployment rate remained at 5.2% although employment growth surprised on the upside. Leading business indicators such as the NAB Business Survey and job vacancies still suggest weaker labour markets ahead.

• The Coalition successfully passed its tax reform package in early July. This will see cash tax offsets be offered as part of FY19 tax returns.

• We saw an uptick in sentiment towards property markets continue with the correction in property prices slowing further.

Major asset class performance
Asset classes 1 month % 1 year % 5 years (p.a.) %
Australian
shares
2.9   13.3 8.5
Global shares (hedged) 1.1     4.1 9.7
Global shares (unhedged) 2.3 11.7 13.8
Global small
companies
(unhedged)
2.5 4.5 13.3
Global
emerging
markets
(unhedged)
0.6 5.5 8.1
Global listed
property
(hedged)
0.6 7.8 7.4
Cash 0.1 1.9 2.1
Australian
fixed income
0.910.4 5.2
International fixed income 0.5 7.8 4.9

Source: Bloomberg & IOOF, 30 June 2019 Indices used: Australian Shares: S&P/ASX 200 Accumulation Index, Global shares (hedged): MSCI World ex Australia Net Total Return (in AUD), Global shares (unhedged): MSCI World ex Australia Hedged AUD Net Total Return Index; Global small companies (unhedged): MSCI World Small Cap Net Total Return USD Index (in AUD); Global emerging markets (unhedged): MSCI Emerging Markets EM Net Total Return AUD Index; Global listed property (hedged): FTSE EPRA/NAREIT Developed Index Hedged in AUD Net Total Return; Cash: Bloomberg AusBond Bank Bill Index; Australian fixed income: Bloomberg AusBond Composite 0+ Yr Index; International fixed income: Bloomberg Barclays Global Aggregate Total Return Index Value Hedged AUD Please note: Past performance is not indicative of future performance.

Currency markets
Exchange rates
At close on 31/7

1 month
change
%
1 year
change  %
USD/AUD 0.68 -2.5 7.8
Euro/AUD 0.62 -0.1 -2.7
Yen/AUD 74.5 -1.7 -10.3
Trade weighted index 59.5  -1.0 -6.3

Source: Bloomberg & IOOF, 30 June 2019. All foreign exchange rates are rounded to two decimal places where appropriate. Please note: Past performance is not indicative of future performance

Disclaimer: This information is current as at 30 June 2019 but is subject to change. This information has been prepared on behalf of Millennium3 Financial Services Pty Ltd ABN 61 094 529 987, AFSL 244252, a wholly owned subsidiary of IOOF Ltd ABN 21 087 649 625 AFS Licence No. 230522. Whilst care has been taken in preparing this information, Millennium3 and its related entities do not warrant or represent that the information is accurate. To the extent permitted by law, Millennium3 and its related entities do not accept any liability from the use of the information. Past performance is not indicative of future performance. The value of investments may rise or fall and the repayment of capital is not guaranteed. The information is not to be construed as investment or financial product advice and should not be relied upon as a substitute for professional advice. The information provided is of a general nature and has been prepared without taking into account a potential investor’s objectives, financial situation or needs. Before acting on this information, potential investors should consider whether the information is appropriate for them, having regard to their objectives, financial situation and needs. Millennium3 Financial Services Pty Ltd ABN 61 094 529 987, AFSL 244252 is a wholly owned subsidiary of IOOF Ltd ABN 21 087 649 625 AFS Licence No. 230522.