In our latest investments video, the Chief Investment Officer Andrew Spence talks about social disruption and what it means for market movements. In that video, Andrew refers to a more detailed round-up for those of you who’d like to know more abut the investment markets. Here it is.

Q2 2017 in detail

As expected, the US Federal Reserve hiked interest rates up 25 basis points (bps) in December with markets having already priced in the move. Federal policymakers cited the rate hike as ‘appropriate in light of solid progress toward goals of maximum employment and 2% inflation.’ On the back of these developments, US Non-Farm Payrolls increased by 165,000 per month on average and unemployment decreased from 5% in September to 4.7% by December.

In Europe, the Eurozone composite purchasing managers’ index (PMI) index grew to 54.4, a 67-month high, with Germany, France, Italy and Spain enjoying positive growth over the period. A key development in the region was the restructuring of the quantitative easing (QE) programme of the European Central Bank (ECB), which was extended to December 2017, but the size of purchases have been reduced from €80 billion a month to €60 billion a month.

The Chinese economy also showed signs of picking up, with both the government and private PMI indicators reaching two year highs in November and the private sector PMI further increasing by 1% in December, the largest expansion since January 2013. The MSCI World ex Australia index grew 7.7% unhedged and 5.2% in hedged terms over the quarter for Australian investors. While returns have been strong, it is important to temper that optimism with caution over upcoming European elections in the coming 2017 year, as well as some concern about the rate of credit expansion in China.

Domestically, the S&P/ASX 300 Index was weak at the beginning of the quarter, returning -2.2% in October. However, conditions picked up during November and December, with the S&P/ASX 300 Index returning 2.8% and 4.3% respectively. Overall, the December quarter was a positive one for the S&P/ASX 300 Index; returning 4.9%, taking the 2016 calendar year return to 11.8%.

The September quarter Consumer Price Index (CPI) increased to 0.7% for the quarter and 1.3% for the year, above consensus expectations. However, the September quarter gross domestic product (GDP) data release of -0.5% for Q3, down from the 0.6% (revised) in Q2, arguably contributed to the decision of the Reserve Bank of Australia (RBA) to hold the cash rate steady at 1.50% over its meetings in the December quarter.
Commodity prices experienced solid growth over the quarter, following China’s strong manufacturing expansion stimulating demand for iron ore and the Organisation of Petroleum Exporting Countries (OPEC) agreement to cut production to 32.5 million barrels per day, starting January 2017, decreasing the supply of oil.

Under the climate of reflation following a recovery across global markets, bond returns over the December quarter were negative. The Ausbond Australian Composite Bond Index returned -2.9% for the quarter, while the Citigroup WGB hedged ex Australia returned -2.6%.