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Market Watch – MARCH 2015

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Australia

  • The Reserve Bank of Australia (RBA) left interest rates on hold at 2.25% on 3 March 2015, after cutting the cash rate on 3 February 2015.
  • The RBA noted that “having eased monetary policy at the previous meeting, it was appropriate to hold interest rates steady for the time being.”
  • However, the RBA did note that “further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target”.As a result the Board “will further assess the case for such action at forthcoming meetings.”
  • On the domestic economy, the RBA noted that”growth is continuing at a below-trend pace, with domestic demand growth overall quite weak.”
  • The housing market is of concern, with investor demand strong in parts of Sydney and Melbourne leading to price gains and gains in investor credit growth. However at this stage the RBA is working with other regulators to “assess and contain risks that may arise from the housing market”.
  • House prices continued to accelerate in March, rising 1.4%per month and 7.4% per year according to RPData-Rismark. On an annual basis, house price gains are now at the slowest level in 19 months.
  • Q4 2014 GDP data rose 0.5% per quarter, taking the annual pace down to 2.5% per year, the slowest pace of growth since Q4 2013. Growth was driven by net exports and financial consumption spending. Inventories were the main drag to growth.
  • The income side of the Australian economy was weak, driven by a 1.7% per quarter fall in the Terms of Trade, which is down 10.8% per year.
  • The unemployment rate edged down to 6.3% in February, from 6.4%. There were 15,600 jobs added in the month, although the fall in the unemployment rate was helped by a lower participation rate.

United States

  • The US Federal Open Market Committee (FOMC) met on 17-18 March 2015 and made no change to policy. However they did make substantial changes to its policy statement, removing the word “patient” from the statement. This essentially makes every meeting live to begin the “lift off” process for interest rates.
  • However the Fed did specifically rule out tightening at the 29 April FOMC meeting, with the FOMC stating it will be appropriate to raise the target rate for the federal funds when it has seen further improvement in the labour market and is reasonably confident that inflation will move back to its 2% objective over the medium term.
  • The Fed statement also acknowledged that “economic growth had moderated somewhat” in early 2015.
  • Employment rose 295,000 in February, stronger than expectations and the unemployment rate fell to 5.5% from 5.7%.
  • Inflation rose 0.2%per month, taking the headline inflation rate to flat over the year, up from -0.1% per year.
  • The European Central Bank (ECB) met 5 March 2015 and announced operational details for its public sector purchase program (PSPP), which was announced on 22 January 2015. A combined €60bn in public and private sector securities will be purchased starting 9 March 2015.
  • The other focus in Europe over March was continued negotiations with Greece, and as the government has come under increased pressure from creditors to implement reforms required to unlock €7.2bn in bail-out funding.
  • The German unemployment rate also hit a post-unification low at 6.4% and retail sales are growing at a solid 3.6% per year.

Europe

  • The European Central Bank (ECB) met 5 March 2015 and announced operational details for its public sector purchase program (PSPP), which was announced on 22 January 2015. A combined €60bn in public and private sector securities will be purchased starting 9 March 2015.
  • The other focus in Europe over March was continued negotiations with Greece, and as the government has come under increased pressure from creditors to implement reforms required to unlock €7.2bn in bail-out funding.
  • The German unemployment rate also hit a post-unification low at 6.4% and retail sales are growing at a solid 3.6% per year.

United Kingdom

  • The Bank of England (BoE) left policy unchanged at its 5 March meeting, as expected. The Bank Rate was unchanged at 0.5% and the stock of asset purchases remained at £375bn.
  • GDP growth forecast for Q4 14 was revised up to 0.6% per quarter and to 3.0% per year. Growth was driven by net exports and the consumer, with net exports contributing the most to growth since Q1 2013.
  • Inflation rose 0.3%per month in February, up from -0.9%per month in January. This took the annual rate to flat, with inflation held back by the stronger sterling and a supermarket pricing war.
  • The Bank of Japan’s (BoJ) policy board convened on 17 March 2015 and left its qualitative and quantitative easing (QQE) program at an annual increase of Y80trillion to its monetary base.
  • Q4 2014 GDP data was revised down, with the Japanese economy growing by 0.4% per quarter, annualising at 1.5% per year, compared to 0.6% per quarter and 2.2% per year prior.
  • The National People’s Congress took place in early March with the 2015 GDP growth target lowered to 7% from 7.5%. The urban jobs target was maintained at 10 million, with the balance maintained between economic and social stability.
  • Premier Li called for “more forceful” fiscal policy and “appropriate” monetary policy to stabilise growth.
  • Further expectations of monetary policy easing in China crept in to markets over March, as well as further financial sector liberalisation.

Japan

  • The Bank of Japan’s (BoJ) policy board convened on 17 March 2015 and left its qualitative and quantitative easing (QQE) program at an annual increase of Y80trillion to its monetary base.
  • Q4 2014 GDP data was revised down, with the Japanese economy growing by 0.4% per quarter, annualising at 1.5% per year, compared to 0.6% per quarter and 2.2% per year prior.

China

Late in the month further easing measures were announced for the property market.  The government announced a cut to both China’s mortgage down payment requirement and property transaction tax policy today. One of these measures was the down payment requirement for all second mortgages has been lowered from 60%-70% to 40%.

Australian dollar

  • The Australian dollar was mixed in March, falling 2.6% against the US dollar to $US0.7607 and traded as low as $US0.7571 in the month, the lowest level since May 2009. The Australian dollar continues to fall, driven by a bleaker economic assessment of Australia versus the US, diverging monetary policy outlooks and sharp falls in the iron ore price. It is widely expected the RBA will ease monetary policy again in coming months, while the US Federal Reserve is inching closer to its first lift in official interest rates.
  • The Australian dollar also fell against the NZD (-1.4%) and the Japanese yen (-2.2%),but rose against the sterling (+1.4%) and the euro (+1.6%).

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Commodities

  • Commodity prices were predominantly weaker in March, with sharp falls in the iron ore price in particular.
  • The iron ore price, as measured by the benchmark price of iron ore delivered to Qingdao China – 62% Ferrous Content, fell 18% in the month to $US51.35/metric ton, as global supply has ramped up and demand from China weakened.
  • The oil price fell in March after recovering in February.
  • Metal prices were mixed with nickel, tin, platinum and aluminium all falling. Lead, copper and zinc all rose.
  • The gold price fell 2.5% to $US1,184 an ounce in the month to be relatively flat over the first quarter of 2015.

 

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Australian shares

  • Australian shares were little changed in March, with the S&P/ASX 200 Accumulation Index declining by 0.1%.
  • Weakness in the Materials sector weighed on the index, as plentiful supply and an uncertain demand outlook kept bulk commodity prices subdued.
  • Led by the ‘big four’ banking stocks, financial stocks tended to perform relatively well, as did health care stocks.
  • There was a fair amount of other company-specific news during the month. iiNet and PanAust both received takeover approaches and mining giant BHP Billiton released full details of its proposed demerger of South32.

Listed property

  • The S&P/ASX 200 Property Accumulation Index declined by 2.1% in March, underperforming the broader Australian share market.

Listed property markets offshore gained in March. Overall, the UBS Global Property Investors Index (local currency) increased by 0.5%. The US & Canada (+1.7%) was the strongest-performing region, followed by Singapore (+0.3%). Japan lagged, returning -2.5%.

Global shares

  • Global share markets were mixed in March, with US markets falling, while Europe and Asia outperformed and posted positive returns.
  • Overall the MSCI World Index fell 1.8% in USD terms and rose 0.6% in AUD terms given the fall in the AUD over the month.
  • US markets moved lower on weaker commodity prices, a stronger US dollar and a growing awareness the US Federal Reserve was getting closer to lifting interest rates.
  • The S&P 500 Index fell from its record high, down 1.7% in the month.
  • Equity markets in Europe were strong, boosted by the start of ECB quantitative easing policy, lower bond yields and tentative signs of improved economic conditions in core countries. Equity markets in Germany, France, Italy and Spain all rose. The Euro Stoxx top 50 was up 2.7%, capping a 17.5% rally in Q1 15.
  • The Japanese Nikkei 225 rose 2.2% over the month. Hong Kong (+0.3%) and Singapore (+1.3%) produced more muted returns.

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Global emerging markets

Emerging market (EM) equities fell in March, although slightly outperformed developed markets. The MSCI EM Index returned -1.6% in USD terms, but rose 0.9% in AUD terms due to falls in the Australian dollar.

Important information
This document has been prepared by Financial Wisdom Limited ABN 70 006 646 108, AFSL 231138, (Financial Wisdom) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. Financial Wisdom advisers are authorized representatives of Financial Wisdom. Information in this document is based on current regulatory requirements and laws, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted by Financial Wisdom, its related entities, agents and employees for any loss arising from reliance on this document. This document contains general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.

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