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Market update

February 2019

The main factor driving financial markets in February was the US-China trade talks, where there was enough progress for President Trump to suspend a tariff increase on Chinese goods scheduled for 1 March 2019 – investors viewed this positively.

Also supporting the market was commentary from the US Federal Reserve reaffirming the banks’ ‘patient approach’ to interest rate management. The market responded positively to the rollout of Chinese stimulus measures, such as lowering the capital reserve requirements for commercial banks, cutting taxes and stepping up infrastructure investment.

US

US shares rose on a solid quarterly earnings season, which saw 70% of the S&P 500 beating expectations in the December quarter. There was also a surge in US jobs growth and consumer confidence.

Europe

Eurozone shares gained, buoyed by the news that the European Central Bank was looking to restart its targeted long-term refinancing operations, providing banks with low cost funding. UK shares rose on hopes the UK would avoid a disorderly exit from the European Union, although striking a final deal remains uncertain.

Emerging markets

After a strong rally last month, emerging markets (such as Argentina, Brazil, India, Indonesia, Mexico and South Africa) rose marginally in February. Supporting this rise was the prospect of a weaker US dollar as well as easing trade tensions.  However, some emerging markets are still dealing with currency depreciation and inflation.

Australia

The Australian share market outperformed most global peers with the ASX300 returning 6% in February.  The Reserve Bank of Australia left the official cash rate on hold at 1.5%, unchanged now for 31 months.

Banks experienced a rally in the wake of the final report of the Hayne Royal Commission, which was light on specific recommendations for the banks' business structures. Stocks were also supported by stronger commodity prices and a better than expected domestic earnings season.

Australian small caps stocks (6.8%), and to a lesser extent large caps (6.1%), outperformed the broader market, while mid-caps lagged (5%). Consumer Staples (-1.4%), Health Care (1.3%) and Property Trusts (1.8%) underperformed in February, while Financials significantly outperformed (9.1%).

The Australian dollar depreciated against most major trading partners during the month, falling against the USD (-2.4%), the Yen (-0.2%) and the Pound (-3.5%).

Bond yields

Bond yields rose across most developed nations, as the UK 10-year yield rose to 1.31%, the US 10-year yield rose to 2.7% and the Euro 10-year yield closed higher at 0.19%. The Australian 10-year bond yield fell marginally to 2.10%, as did the New Zealand 10-year bond yield falling slightly to 2.16%.

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