Market Update - July 2016

Market Commentary
July 2016

 

The global markets rose in July, with much of the performance driven by expectation of further stimulus from central banks globally.  The decrease in energy prices seemed to be an exception from the upward movements in most markets and sectors.
The Australian market shook off concerns about an inconclusive Federal election and uncertainties of the possible impact of the U.K.’s decision to leave the EU, to gain 6.4% in July.  
European equity markets bounced back from the falls caused by the announcement of the UK’s decision to leave the EU, with France, Germany and the UK all posting positive returns.  Performance of Asian markets was also positive as the Nikkei Index (Japan) rose 6.4%, while the Shanghai Composite Index (China) rose 1.7% over the month. 
The economic and market news that might have affected the market movements in July were:

  • There were numerous positive economic releases in the US, including strong nonfarm payrolls, and stronger than expected results in the corporate earnings season.
  • In Europe, the corporate reporting season was better than expected. There were also expectations of rate cuts by the Bank of England (BoE) and European Central Bank (ECB).
  • S&P cut Australia’s rating outlook from stable to negative in July, posing a threat to Australia’s AAA sovereign debt rating.
  • In China, the country GDP grew 6.7% year-on-year growth in GDP and its industrial production and retail sales data were improving.  In Japan, Prime Minister Abe unveiled a proposed 28 trillion Yen fiscal stimulus package.

The monthly and quarterly returns of the major markets to 31 July 2016 are summarised below. For the financial year to 31 July 2016, the monthly returns are the same as the financial year to date returns.

The Australian shares market as measured by the S&P ASX300 Accumulation Index surged 6.4% in July. Small Cap stocks rose 8.6% for the month, outperforming the broader market and Large Caps stocks (5.8%).  Consumer Discretionary (8.9%), Consumer Staples (8.6%) and Materials (7.8%) stocks outperformed, while Energy (0.2%) and IT (3.9%) underperformed.
The MSCI World ex-Australia Index (hedged into AUD) gained 4.1% over the month.  The Australian Dollar appreciated in July, which resulted in a return for unhedged overseas equities of 2.0% (in AUD).  The July returns were boosted by strong rebound in Europe and Japan as noted earlier. Other strong performers were New Zealand (9.1%) and Austria (7.6%). The US equity markets as measured by the S&P 500 rose 3.6%, slightly behind the 4.1% global equity return.
Australian and global bonds also contributed positively during the month.