January provided some respite for global markets as concerns over rising US interest rates faded, China signalled a continued desire to stimulate the economy and the US temporarily reopened the government after the longest federal government shutdown in history.
The US share market started 2019 positively with the S&P 500 climbing 7.9% over January. This was largely driven by the Federal Reserve indicating they would be unlikely to push up interest rates too hard, too quickly. Robust economic data, despite a federal government shutdown for most of January, and news that trade talks with China were progressing were viewed favourably by global markets.
UK and China
The UK share market followed global markets up, buoyed by stronger than expected GDP growth and falling inflation. This was despite all the challenges the UK faces with the imminent Brexit deadline.
In China, growth continued to slow as the effects of the US/China trade war flowed through to the broader economy. However, Chinese share markets moved higher over the month as the People’s Bank of China announced positive news in relation to trade talks with the US.
The Australian share market rallied alongside global share markets in January with the ASX 300 rising 3.9% over January (although the rise was more modest than global share markets). The weaker relative performance was driven by the Financials sector (-0.3%) which was weighed down by investor expectations of potential negative implications flowing from the Royal Commission into Financial Services. The Energy sector saw the largest monthly appreciation (11.5%) as crude oil prices rebounded from a disappointing December quarter, followed by the IT sector (8.8%).
The Australian dollar appreciated against most major currencies during January, rising marginally against the Pound (0.3%), and more significantly against the USD (3.6%), Euro (3.2%), and Yen (2.7%).
Global bond yields
Slightly lower bond yields across most developed markets led to small positive returns for most bond indices. Yields on US 10-year (2.63%), Australian 10-year (2.23%), and UK 10-year (1.22%) government bonds all traded lower. Credit indices outperformed broader fixed income indices over the month recovering some of the losses from late 2018.