Selected Market Indicators for Periods Ended 31 January 2019 

Global markets rebounded in January with all developed markets posting positive returns.

The US Federal Reserve’s announcement in early January indicating it will be more cautious with further rate hikes, alongside stronger than expected corporate earnings and a strengthening US labour market, provided investors with a much needed positive start to 2019 after a rough end to 2018. The S&P 500 Index (a measure of US equity market performance) closed out its best January in over 30 years, up +7.9%. All other asset classes started 2019 with positive returns.

The MSCI World Index rallied, up +7.2% in local currency terms over the month, while unhedged investors (+4.3%) lost out from a weaker US dollar. The New Zealand (+2.0%) and Australian markets (+3.9%) performed well, but lagged larger developed markets. Emerging markets kept pace with Developed Markets, returning +7.2% over the month. Global Listed Property and Infrastructure markets performed strongly, up +10.0% and +6.5% respectively. NZ and Global aggregate bonds also delivered positive returns (up +0.6% and +1.0% respectively).

An estimate of a Balanced Fund gross index return based on selected market indicators for January is +4.3%.

Significant developments include:
 

• The US Federal Reserve (‘Fed’) took a more conservative approach to US monetary policy this month, keeping the Fed Funds Rate target band at 2.25% – 2.50%. The Fed Chairman, Jerome Powell, indicated it will take a more cautious and patient outlook to further rate hikes in 2019. The announcement encouraged investors with equity markets surging past the announcement.
• UK Prime Minister, Theresa May’s, proposed Brexit deal was rejected in parliament by a record majority. Ongoing discussions between May and the EU around the ‘Irish backstop’ are now set to take place and pending successful negotiations, a revised Brexit deal will be put forward to the UK House of Commons. Time is running out, however, with the UK set to formally exit the EU on 29 March 2019.
• The partial shutdown of the US government ended on 25 January 2019, after a record 35 days. President Trump and the US Congress agreed to provide temporary Government funding. However this did not include any budget for the US-Mexico border wall - the major obstacle to reaching agreement in the first place. Negotiations on US-Mexico border security continue.
   

Trans-Tasman Equities
The NZ and Australian share markets finished January in positive territory, but behind most of their global counterparts; the NZX 50 and ASX 200 Indexes rose 2.0% and 4.0% respectively for the month. Interest rates in both economies have been on hold since the second half of 2016, NZ at 1.75% and Australia at 1.5%. Returns for both markets remain positive over 12 months.

Global Equities
Developed markets, down -7.9% in December 2018, returned +7.2% for the month.  US monetary policy tightening looks to have paused as the Fed adopted a more conservative interest rate outlook. This, combined with better than expected corporate earnings, helped fuel the recovery. Emerging Markets kept pace with Developed Markets, up +7.2% in local currency terms.

Property and Infrastructure
Global Listed Property (hedged) and Global Listed Infrastructure (hedged) both rebounded heavily this month, delivering positive returns, up 10.0% and 6.5% respectively. Helped by the more stable US Fed interest rate announcement, these defensive asset classes also become more attractive to investors amidst slowing global growth and increasing economic uncertainty.

NZ Bonds and Cash
NZ government and corporate bonds both rose +0.6% in January as the 10 year NZ government bond yield fell 0.10%. Many NZ managers have adopted the Bloomberg NZBond Composite Index from 1 January. As with the global aggregate index the NZ composite index measures a market-weighted return of NZ government and corporate bonds; the return for January was +0.6%.

Global Bonds
Global aggregate bonds returned +1.0% for the month. Corporate bonds led the way (+1.8%) as corporate earnings were more positive than expected, outperforming Government bonds (+0.8%) for which investor appetite still remains. Most major bond market yields declined slightly during the month, including the US 10-year bond yield, which fell 0.05% to 2.64%.

Currency
The NZ dollar strengthened against most major currencies over the month. The moderation of the US monetary policy stance, weak business sentiment in Europe, optimistic views about a US-China trade deal and an upgrade in the S&P economic outlook for NZ from ‘stable’ to ‘positive’, all contributed to a stronger NZ dollar over the month. The largest movements were recorded against the US dollar (+3.4%) and the euro (+3.1%).