Source: BT Financial

Developments in the global economy 

Central banks have generally moved to an easing stance on the back of growing concerns with weaker economic growth. It remains to be seen if sufficient fiscal policy support will also be implemented. 


CPI was flat over the March 2019 quarter for Australia, rising 0.1% since the December 2018 quarter. While the RBA lowered rates in its June 2019 meeting there is growing speculation around what the government might be able to do from a fiscal policy perspective. While the government passed tax cut legislation in early June questions are being raised whether more may be needed if Australia is to avoid a recessionary downturn. Lending to households and business continue to fall, off -3.7% and 1.5% respectively. However, CoreLogic’s 8 Capital City Index indicated Melbourne and Sydney had both delivered marginal gains in house prices over June. This is the first rise in both cities since 2017 when both reached their peaks. Whilst no one appears to be calling the beginning of another property boom, there are some tentative positive signs showing. 


The US China trade stand-off occupied the headlines over June as concerned commentary appeared to dominate headlines. The unemployment rate remained stable at 3.6% over May, but Factory Orders fell -0.8% month on month over April which led to inventories building 0.8% over April. While there has been much talk of the trade stand-off it has not clearly impacted on the real economy to date. Inflation fell marginally year on year from 2.1% to 2.0% over May. Inflation at 2.0% is well within reasonable bounds for the Fed, although efforts are currently aimed at promoting inflation higher rather than reducing it. 


Core inflation has fallen considerably in Europe over the year from 1.3% to 0.8% while in the United Kingdom it has edged down from 1.8% to 1.7% over the same period. The European Central Bank and Bank of England both held official interest rates steady, although the ECB has been providing liquidity to troubled Euro banks for some months now to help maintain market stability. On a positive note the Markit Composite Purchasing Managers Index (PMI) for Europe rose from 51.5 to 51.8 in May, which was ahead of consensus forecasts. However, retail sales indicate consumers in Europe continued to pull back in April as retail sales growth remained negative. It was a similar story in the United Kingdom where retail sales were down over May, following on from falls in industrial and manufacturing production over April. 


Vehicle sales in May fell 16.4%, an increase on the fall in April of 14.6%. This is a worrying statistic, however retail sales rose 8.6% over the year to the end of May which was up from the 7.2% over the year to the end of April. The 8.6% rise in retail sales was also ahead of expectations at 8.0%. Chinese statistics on manufacturing and non-manufacturing have been falling, on the back of the US China trade stand-off. It remains to be seen how negotiations between the two countries progress. 


Japan continues to struggle to lift its inflation rate with the core inflation rate coming in at 0.8% for the year to the end of May despite Bank of Japan official interest rates sitting at -0.1%. Both exports and imports fell over the year to the end of May, with both coming in below consensus expectations. Retail sales growth showed some glimmer of hope coming in at 0.3% for the month of May, ahead of consensus and well up for the previous month’s fall of -0.1%. Monthly Commentary – June 2019 2 

Developments in financial markets 

Bonds rallied along with global equities as concerns around the trade war eased and markets focused on easing monetary policy. June was a stellar month for equity markets, however while easing monetary policy is viewed positively by equity markets it is yet to be seen if it is enough. 

Australian shares 

The S&P/ASX 200 Accumulation Index rose 3.7% over May following a 1.7% increase in April. Australian equities continue to perform very well against global markets over 12 months, however the impact of currency has led to unhedged global equity returns marginally outperforming Australian equities over 12 months. Resources performed very well, up 6.4%, however Industrials were also solid with a 3.0% rise over the month. Small caps lagged, delivering a 0.9% return. The best performing sectors were Materials (+7.1), Industrials (+5.1%) and Health Care (+5.1%). The worst performing sectors were Information Technology (-2.4%), Consumer Discretionary (-1.3%) and Energy (0.6%). At the stock level, the best performing stocks in the S&P/ASX200 in June were Eclipx Group Ltd (+51.44%), Nanosonics Limited (+30.4%) and Northern Star (+25.8%). The worst performing stocks included Link Admin Holdings (-35.6%), Vocus Group (-29.1%) and Pilbara Mines Ltd (-25.9%) 

International shares 

The MSCI World ex Australia Index (A$) returned 5.3% in June, more than compensating for May’s weakness, while strength in the Australian dollar (AUD) reduced gains marginally over the month. Emerging markets performed well over the month, delivering 4.6% although they lagged developed markets. 

The S&P 500 was up 7.1% over June with trade war concerns apparently no longer a concern and the market focusing instead on the prospect of easier monetary policy from the Federal Reserve. The Nikkei was also up over June, rising 3.5%, however the Nikkei still remains in negative territory over 12 months. 

Both the UK and European equities were up over June delivering 4.0% and 4.6% respectively. The major markets of Germany (4.2%) France (5.5%) and Italy (6.5%) all delivered solid positive returns over the month. The Shanghai Composite was up 4.2%. 

Fixed Interest and Cash 

Government bond yields fell over June, a significant contributor to the rally in equity markets over June. Expectations of easier monetary policy form the Fed and actual rate cuts by the RBA drove yields lower. With the fall in yields the Bloomberg AusBond Composite Bond Index and Bloomberg Barclays Global Aggregate Bond Index hedged in $A both posted solid positive returns, up 1.0% and 1.3% respectively over June. 


AREITs remain the stand out asset class over the last 12 months as they rose 4.2% over the month and lifted the one year return to 19.3%. GREITs rose a much more sedate 1.0% over June delivering 8.7% over the year. Falling interest rates significantly benefited AREITs, with GREITs benefiting to a lesser degree. 

Currency and Commodities 

The Australian dollar rose over June almost one cent higher against the US dollar at US$0.7022 having started the month at US$0.6935. This was an interesting outcome given Australian rates were cut which would traditionally lead to a weaker AUD. Gold strengthened over June, rising 9.4% to $1,409.6. Most of the base metal commodities were up over June; Iron Ore (+7.4%), Lead (+7.1), Nickel (+3.9%) and Copper (+2.8%), while Zinc (-5.4%) and Tin (-0.3%) were both exceptions with price weakness. Fossil fuels Coal (-11.5%) Brent Oil (-3.1% both dipped over the month. Monthly Commentary – April 2019 3 

Key market returns at 30 June 2019 

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Belinda Frazer