Market Key Points
- The Australian equity market rebounded in October returning 3.8% over the month.
- Global developed markets had a strong month, US equity markets buoyed by the presidential election results.
- Asian markets suffered most visibly by comparison as the threat of tariffs potentially imposed by a Trump presidency were assessed.
Australian equities
After losing ground in October, the ASX 200 rebounded strongly in November, posting its best returns since July. The ASX 200 Accumulation Index rose by 3.8% for the month. This performance was largely driven by the clarity provided to Australian investors following the US election.
Out of the 11 sectors, nine recorded gains. Information Technology led the way with a 10.5% increase, followed by Utilities (+9.1%), Financials ex-Property (+7.0%), and Consumer Discretionary (+6.9%). However, Energy (- 0.7%) and Materials (-2.6%) lagged.
Information Technology continued its impressive momentum, returning 68.3% over the past 12 months. Standout stocks for the month included TechnologyOne (ASX: TNE), Xero (ASX: XRO), and Life360 (ASX: 360).
In contrast, investors were cautious in the Energy and Materials sectors due to concerns over additional US tariffs impacting the already stuttering Chinese economy. Major players like Rio Tinto (ASX: RIO), BHP (ASX: BHP), and Fortescue (ASX: FMG) saw declines.
Gold miners also struggled as investors rushed to the US Dollar following the Trump election, which pushed down the price of gold.
Global Equities
Developed Markets outperformed Emerging markets in November largely driven by a rally in US Markets, post election results. Developed markets gained 5.18% (MSCI World Ex-Australia Index (AUD)) versus a -3.07% return (MSCI Emerging Markets Index (AUD)).
US markets rallied post-election results with the S&P500 closing at an all-time high, gaining 8.8% for the month (in local currency terms). The FOMC decision to cut interest rates by another 25 basis points also contributed to a broad market rally with the Nasdaq Composite gaining 6.3% (in local currency terms) while the Russell 2000 gained 11.0%, the best month since December 2023.
Asian markets suffered most visibly in November as Trump threatened to impose Tariffs when in office. The Chinese Hang Seng Index fell -4.23%, while the CSI 300 Index, rose a modest 0.75% (in local currency terms), assisted by further Chinese pledges from authorities to support the economy. while in Japan the Nikkei 225 Index fell -2.22% (in local currency terms).
Property
The S&P/ASX 200 A-REIT Accumulation Index TR reversed the negative result in October, finishing the month up 2.48% in November. The Index is up 26.0% YTD.
Similarly, global real estate equities also reverted, increasing by 2.7% (represented by the FTSE EPRA/NAREIT Developed Ex Australia Index (AUD Hedged)). Australian infrastructure saw the largest reversal of the three indexes, bouncing back with a return of 4.98% after a falling 4.75% in October. The index has delivered a return of 9.65% YTD.
November saw muted activity in Australia on the M&A front across the A-REIT sector, with AGM season dominating company announcements. Tense talks continued between Hotel Property Investments (HPI) and the Charter Hall Retail REIT (CQR) led consortium. Following the rejected revised bid of $3.85-per-share, the bid was lowered to $3.785-per-share.
As expected, HPI directors have unanimously recommended shareholders reject the offer. Stockland Corporation Limited (SGP) acquired 12 Australian residential master-planned communities from Lendlease (LLC) for $1.06bn.
The transfer of projects was completed on 29 November. Dexus (DXS) has announced it has entered into an agreement to sell two office properties (Pyrmont, Sydney and Brisbane) for $443.2m.
The Australian residential property market experienced an increase of +0.1% Month on Month (as represented by CoreLogic’s five capital city aggregate). Perth continued its strong run and was the biggest riser (+1.1%, 21.0% YoY), followed by Adelaide (+0.8%) and Brisbane (+0.6%). In contrast, Melbourne was the worst performer and continued to experience a fall in value (- 0.4%) alongside Hobart (-0.1%) and Sydney (-0.2%).
Fixed Income
The bond market displayed mixed signals throughout November. Early in the month, investors anticipated volatility and potential inflationary pressures following a Trump victory in the US elections. However, as uncertainty subsided, yields began to fall, and the month concluded on a more favourable outlook.
While the overall Consumer Price Index (CPI) showed signs of easing, the Reserve Bank of Australia's (RBA) preferred measure, core inflation, rose month-on-month indicating a sticky inflationary environment.
This suggests that the RBA is unlikely to cut rates until the new year. In addition, the labour market showed signs of cooling, with wage growth decelerating and consumer confidence stabilising however, broader economic uncertainty remains. Amidst this backdrop, the 2-year and 10-year yields Australian government bond yields dropped 8 and 16 basis points respectively.
In the US, the Federal Reserve implemented a 25-basis point rate cut, in line with a softening job market and bringing inflation closer to the 2% goal. As the month unfolded, the bond market started to correct its initial overreaction to the potential inflationary policies under the newly elected administration, with yields on the 2- year and 10-year US government bonds falling by 3 and 12 basis points, respectively.
Currencies
The Australian dollar (AUD) maintained its value over the month of November, closing flat at 0.0% in trade weighted terms at 61.5, depreciating against the US Dollar (USD) and the Japanese Yen (JPY), whilst appreciating against the Pound Sterling (GBP) and Euro (EUR).
The Australian dollar weakened against the USD in November, amid speculation around the upcoming Trump administration’s policy implementations.
Additionally, the Federal Reserve cut its interest rates by 25bps in November with the RBA maintaining rates for the month. Across European markets the AUD appreciated, with investors seeing Europe as more sensitive to trade wars with potential tariffs.
Relative to the AUD, the JPY appreciated the most in November, appreciating by 2.4%. Conversely, the GBP was the lowest performer of the month, depreciating in relative terms by 0.1% against the AUD. Year-on-year, the AUD remains ahead of the EUR by 1.6%, whilst the USD, GBP and JPY are ahead by 1.4%, 2.3% and 0.4% respectively in relative terms
Economic key points
- Australian GDP for Q3 2024 was 0.3%, while the annual rate of 0.8% was the weakest in decades.
- The RAB kept interest rates at 4.35% during its November meeting.
- The FED cut interest rates to 4.75% in its November meeting
Australia
GDP growth for the September quarter slowed further to +0.8% on an annual basis, well below economists’ expectations. This was despite rising federal and state government spending, which ABS data indicates jumped 4.7% compared to the previous September quarter.
The RBA recently admitted that it had underestimated the scale of aggregate fiscal spending, including infrastructure programs, public servant wage inflation and the burgeoning cost of the NDIS.
The weaker GDP data has revived expectations for our central bank to cut interest rates in the first half of 2025. The RBA kept rates at 4.35% at the November meeting with minutes from the meeting showed that the board members had considered a range of scenarios which might justify an easing of monetary policy.
However, the commentary also suggested a reluctance to move towards rate cuts without sustained or widespread indications that they were required, for example in needing to observe “more than one good quarterly inflation outcome” to be confident that any decline was sustainable.
CPI data showed the headline inflation rate to be unchanged at +2.1% for the rolling 12 months to October, but the trimmed mean metric favoured by the RBA accelerated from +3.2% to +3.5% for the same period. The change reflected broad-based price pressures across a range of goods and services, belying the headline numbers which have been skewed down by federal and state government energy rebates.
The unemployment rate was steady at 4.1% in October, matching market estimates. Retail sales rose 0.6% in October, ahead of market expectations of a 0.3% increase, while annual sales jumped 3.4% for the same period. The Westpac Melbourne Institute Consumer Sentiment Index increased 5.3% to 94.6 in November as consumers see some further easing in the pressure on family finances, are no longer concerned about the risk of further interest rate rises and are becoming more confident about the economic outlook.
Composite PMI was steady at 50.2 in November, just into expansion territory and driven by services activity. The trade surplus widened to $5.93bn in October, the largest since February, ahead of market estimates of $4.55 billion and the revised prior reading of $4.53 billion.
US
The US elections gave a clear mandate to Donald Trump and the Republican party with President-elect Trump winning 5 of the 7 key battleground states and the Republican party gaining majorities in both houses of Congress. This control of the US Congress has improved the prospects that the party can deliver their policy agenda, including tighter border security, tax and spending cuts, and deregulation.
Non-farm payroll added 227,000 jobs in November, ahead of market estimates of 200,000 and the revised 36,000 recorded in the prior month. The unemployment rate was in line with market forecasts at 4.2%, a rise from the 4.1% last month.
Retail sales in October rose 0.4%, above the anticipated 0.3% but below the upwardly revised 0.8% increase seen in September. Annual retail sales increased 2.8%, ahead of the forecast 1.9%. Consumer sentiment rose to 71.8 in November, below the anticipated 73.7, but still the highest reading in seven months, with optimism about future employment prospects and the lowest inflation expectations since 2020.
Composite PMI rose to a 31-month high of 54.9 in November, driven by robust growth in services activity. The trade deficit narrowed in October to $73.8bn, compared to a forecast $75bn deficit.
Eurozone
GDP grew 0.4% in the September quarter, matching forecasts and up from 0.2% the previous quarter. Year on year GDP for the same period came in at 0.9%, up from 0.5% in the June quarter.
Annual inflation rose to 2.3% in November, matching market expectations. This increase was largely expected, as last year’s sharp declines in energy prices are no longer factored into annual rates.
Retail sales fell 0.5% in October, below the expected 0.3% decline and reversing the 0.5% rise in September. Annual sales rose 1.9%, ahead of an anticipated 1.7% rise. In November, consumer confidence dropped 1.2 points to -13.7, well below the forecast -12.4. due to consumers’ substantially deteriorating assessments of both the economy and household’s future finances.
The unemployment rate was unchanged at 6.3% for October, in line with market forecasts.
The Composite PMI dropped to 48.3 in November, with services activity declining for the first time in ten months and the manufacturing continuing its decline.
UK
At its November meeting, the Bank of England cut interest rates for the second time this year, bringing them to 4.75%.
This decision aligns with evidence of slowing price growth in the UK economy, with September’s inflation print dropping to a three-year low of 1.7%. Annual inflation increased to 2.3% in October, exceeding both the Bank of England target range and market expectations of 2.2%. The largest upward contribution came from electricity and gas, reflecting the increase of the Ofgem energy price cap in October.
The unemployment rate rose to 4.3% for the three months to September, above the market estimates of 4.1%.
Consumer confidence increased 3 points to -18 in November amid lower interest rates, rising wages and reduced concerns about tax increases.
Composite PMI fell to 50.5 in November, with softer services growth unable to offset the renewed downturn in manufacturing activity.
China
Annual inflation edged lower to 0.2% in November, below the expected 0.5% and highlighting mounting deflation risks despite recent stimulus measures from the government and supportive monetary policy by the central bank.
The Caixin/S&P Global manufacturing PMI rose to 51.5 in November, indicating factory activity expanding at the fastest pace since June this year.
New export orders rose for the first time in four months, and business confidence has also improved. This was consistent with the broader Chinese Bureau of Statistics PMI (which includes more state-owned companies), suggesting that recent government stimulus is assisting local industry. China’s unemployment rate fell to 5.0% in October, below expectations of 5.1%.
Retail sales grew 4.8% year on year in October, easily beating market expectations of +3.8%. It was the fastest growth in retail turnover since February, boosted by a week-long holiday, a recent shopping festival, and a series of support measures from Beijing in late September to bolster demand.
Japan
Bank of Japan Governor Ueda noted that the local economy was progressing towards sustainable wage driven inflation, which left the door open to a further interest rate hike in December. Although many uncertainties remained, Mr Ueda stated that full clarification of these wouldn’t necessarily be needed before taking further action. In mid December, the central bank is due to release its review on the unconventional monetary policies pursued since the late 1990s.
Findings are expected to provide extra justification for the current plans to steadily raise interest rates towards more normal levels.
Annual inflation rate decreased to 2.3% in October as the effect of the energy subsidy removal in May diminished.
Retail sales increased 0.1% in October with the annual rate rising 1.6% missing the forecast 2.2% increase Consumer confidence came in at 36.4 in November, up from October’s five month low and in line with forecasts.
Composite PMI bounced back into expansion territory, coming in at 50.1 in November and indicating a broad stabilization in private sector activity. While the service economy saw marginal growth, manufacturing production continued to decline, and new order stabilisation was driven by services output.
This article contains information first published by Lonsec. Voted Australia’s #1 Research House for 2019.
General Advice Warning
The information on this website contains general information and does not take into account your personal objectives, financial situation or needs. You should consider whether the information and any general advice provided is appropriate for your personal circumstances and where uncertain, seek further professional advice before taking any action.
Important Information
Walbrook Wealth Management is a trading name of Barbacane Advisors Pty Ltd (ABN 32 626 694 139; AFSL No. 512465). Barbacane Advisors Pty Ltd is authorised to provide financial services and advice. Walbrook Wealth Management (Credit Representative Number 534783) is authorised under Australian Credit Licence 389328. We have based this communication on information from sources believed to be reliable at the time of its preparation. Despite our best efforts, no guarantee can be given that all information is accurate, reliable and complete. Any opinions expressed in this email are subject to change without notice, and we are not under any obligation to notify you with changes or updates to these opinions. To the extent permitted by law, we accept no liability for any loss or damage as a result of any reliance on this information.
