Equity markets posted solid returns in March 2019, continuing the upward trend albeit at a slower pace than February. The Australian share market rose 0.7% over the month, the weakest of major developed peers barring Japan, whilst the Australian Dollar broadly remained neutral and investment grade credit spreads fell.

The United Kingdom remains in the European Union (“EU”) for the time being, despite voting over two and a half years ago to leave, with a set departure date of the 29th of March. Theresa May, the prime minister of the UK, asked Donald Tusk, the president of the EU council, for an extension to the withdrawal timeline.  European policymakers granted two possible dates in order to avoid a crash-exit at the end of March, being the 22nd of May (on the condition that May’s deal gets passed by Parliament on its third attempt) or the 12th of April. EU elections begin on the 23rd of May, and European officials do not want UK involved if they are set to leave the EU. During the month May saw her negotiated withdrawal deal struck down by Parliament in a continuation of the Brexit chaos. With May’s deal failing once again, the 12 April deadline remains in place. 

Trade talks between China and the US stalled somewhat early in the month with Secretary of State, Mike Pompeo, quoting President Trump as saying he will walk away from any deal unless it’s a “perfect deal”. Trade talks continued on 28 March with US Trade Representative, Robert Lighthizer, stating he is “hoping but not necessarily hopeful” that a comprehensive deal will be reached. 

The special investigator, Robert Mueller, concluded his investigation into obstruction of justice and possible collusion between Russia and President Trump during the 2016 election. Whilst not exonerating Trump of obstruction of justice, the report has been largely interpreted as supporting the President’s version of events despite numerous convictions against former members of his inner circle. The report has not been made public at this stage.

Equities

Equity markets continued their recent strong run in March. The UK equity market was the best performer over the month, delivering 3.3% in total return terms, whilst international developed market equities returned 1.6% on a local currency basis. Emerging markets marginally underperformed developed markets over the month, posting 1.4% in local currency terms. The Australian stock market generated a 0.7% return over the month.

The highest returning sector in Australia was Real Estate, followed by Consumer Staples and Telecommunications. The worst performing sectors were Energy and Financials, the only two sectors to post a negative return for the month.

From a developed market sectoral perspective Consumer Staples and Information Technology were the best performing sectors, whilst the only detractor in local currency terms was Financials.

Bonds

Bond yields decreased in all major fixed income markets, including within Australia. The US Federal Reserve made a number of dovish statements during March, catching the market off guard as investors had widely expected a further hike in 2019.

Australian, US and UK government bonds performed strongly in March with yields decreasing on two-year and ten-year domestic paper by 0.23% and 0.33% respectively.  The Reserve Bank of Australia left cash rates unchanged at 1.5% as Governor Philip Lowe stated that global financial conditions remained accommodative supported by rising employment figures.

Currencies

The Australian Dollar increased in value against the Euro and the British Pound but fell versus the Japanese Yen. The Australian Dollar finished the month at 0.7096 US Dollars, keeping neutral during March.

Commodities

WTI crude oil rose 5.1% during March, with Brent gaining 3.6% on the back of accelerating supply cuts from Russia and falling shipments from Saudi Arabia and the UAE. Industrial metals remained neutral on average whilst precious metals fared less well given the risk-on sentiment in March, with gold and silver prices falling by 1.6% and 3.2% respectively.

Performance of key markets