Market Watch – March 2014
- The Reserve Bank of Australia (RBA) held the cash rate steady at 2.5% for an eighth consecutive month at its 4 March 2014 meeting.
- There was no change to the RBA’s neutral policy guidance centred on a “period of interest rate stability”. The Board did appear more comfortable with the domestic growth outlook, with recent economic indicators considered to be “generally positive for consumption, housing investment, business condition and exports.”
- The Board reinserted its comment that “the exchange rate remains high by historical standards” in the policy statement, implying that the RBA’s preference is still for a lower Australian dollar (AUD).
- The February employment report was very positive with 47,300 jobs created, well above consensus expectations for 15,000 jobs. Full?time jobs increased by 80,500 while part?time jobs fell by 33,300 over the month. The unemployment rate remained at 6.0% in February.
- In her first meeting as Chair of the US Federal Reserve (‘the Fed’) on 18-19 March 2014, Janet Yellen announced a further $US10bn ‘tapering’ in the QE3 bond purchase program, taking monthly bond purchases down to $US55bn.
- In terms of forward guidance, the Fed abandoned the 6.5% unemployment rate threshold and replaced it with a general assessment of labour market, inflation and financial market conditions. Any increase in interest rates is expected to be a ‘considerable time’ after QE3 ends – most likely mid-2015.
- Retail sales rose by 0.3% in February, marginally above expectations of 0.2% growth.
- The European Central Bank (ECB) left its main policy rates and forward guidance unchanged at its 6 March 2014 meeting.
- The EU Banking Union was finally agreed, ensuring that Eurozone governments are no longer sole masters of their large national banks. Lenders will be ‘policed’ by the ECB and wound-down by a central authority, if necessary, against the wishes of the home state using a €55bn rescue fund.
- The Bank of England’s Monetary Policy Committee (MPC) maintained policy on hold, as expected.
- The UK Government released its 2014 budget which contained policies designed to buoy small businesses through increasing support for construction firms, export finance, increasing the investment allowance and making energy costs more competitive for businesses.
- GDP growth was confirmed at 0.7% per quarter for a 2.7% annual growth pace, in the final Q4 2013 report.
- The unemployment rate remained unchanged at 7.2% over the three months to January.
- House prices surged by 6.8% in the year to January 2014; its largest increase since August 2010, up from 5.5% in December led by London (+13.2% per year).
- More than 50,000 workers at Toyota won their first increase in base pay since 2008. Monthly salaries will rise by an average of ¥2,700 ($US26) above increases related to the cost of living.
- Japan’s trade deficit exceeded expectations in February with the weak Japanese Yen (JPY) boosting import costs. Imports (+9.0% per year) and exports (+9.8% per year) increased. While profit margins have improved for exporters, the export sales boom is yet to kick-in.
- China’s export growth came in much weaker-than-expected at -18.1% per year in February, compared to 10.6% per year in January. However, import growth surprised on the upside at 10.1% per year in February vs. 10.0% per year in.
- Growth in industrial production slowed significantly in February to 8.6% per year from 9.6% per year in December 2013. This level is the lowest recorded since May 2009.
- The Australian dollar (AUD) increased by 3.8% to finish March at $US0.9264, supported by the RBA’s neutral policy stance and more positive commentary on the domestic economy, including the much better-than-expected February employment report.
- A broad range of commodity prices were lower in March. Energy prices fell, with natural gas prices 13% lower on average, falling from elevated levels with improving weather in the US expected to dampen heating related energy demand. Crude oil prices were marginally lower, with the average of WTI, Dubai and Brent prices falling by 0.7% during the month.
- Agricultural prices increased, led by pork (+32%), as the outlook for supply has been reduced by the emergence of a porcine virus in the US. Wheat prices increased by 11% during the month, supported by political instability in Ukraine along with potential damage to crops from cold weather in the US.
- Metals prices weakened. Gold (-3.2%) declined as geo-political tensions in Crimea calmed somewhat. Iron ore prices fell by 1.1%. Copper prices also declined by 5.2% as indicators of Chinese activity continued to soften, weighing on the outlook for industrial commodities.
- Australian shares were little changed in March, but the receipt of dividends enabled the S&P/ASX 200 Accumulation Index to edge 0.29% higher, despite reaching a six year high on 7 March.
- A sharp drop in iron ore prices early in the month dampened sentiment towards mining stocks. The price recovered in the second half of the month, but the materials (-3.1%) sector nevertheless underperformed other areas of the market. The gold price also declined, which reduced the allure of gold miners.
- The S&P/ASX 200 Property Accumulation Index declined by 1.6% in March. News flow was dominated by corporate re-structuring activity. Westfield Group was a notable participant, selling three non-core UK shopping centres to UK shopping centre owner, developer and manager Intu for more than $A1bn.
- Global developed equity markets were broadly flat in March as political tensions between Russia and the West dominated sentiment. Concerns over weak Chinese growth provided some hope to investors that the Government would announce additional policy stimulus measures.
- The US S&P500 Index increased by just 0.7% as mixed domestic economic data saw defensive sectors such as Telecoms (+4.7%) outperform.
- The Japanese Nikkei 225 Index was little changed (-0.1%).
Global emerging markets
Emerging market equities outperformed their developed market counterparts in March – the first time since August last year. The MSCI EM Index returned 2.9% in USD terms, but decreased by 0.9% in AUD terms. The crisis in Crimea and increased market hopes for a government stimulus package to counter weaker economic data in China dominated news flow.
Leanne Rudd of The Money Edge is an Authorised Representative of Count Financial Limited ABN 19 001 974 625, AFSL 227232, (Count) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124.
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