TAMIM Joint Managing Director Darren Katz takes a look at the financial world in the month of November. Both domestic and global markets continued their downward trend through the month of with very few exceptions. Emerging Markets have recouped some of their losses from October but investor sentiment remains low.
Much of the risk-off momentum has been primarily driven by concerns around geopolitics, with Trade and Brexit at the forefront. This no doubt has been further exacerbated by the increasingly divisive rhetoric coming out of Washington. Closer to home, while the underlying economy continues along a steady trajectory, concerns around housing and the royal commission have put pressure on equities with the ASX 200 finishing down 2.4% for November and taking back the gains made through the calendar year to finish in the red, down 2.7%.
November was very much a roller coaster ride for US equities. The results of the midterms and the subsequent Republican loss of the house while expected still created the prospect of a policy gridlock in the coming two years. However the bigger elephant in the room was Fed policy. In many ways the volatility throughout the month was a carry forward of the previous month of October and the markets pricing in the possibility of aggressive rate hikes. The one reprieve of course was the perceived change of tack from Powell at the economic club of New York luncheon and to quote exactly:
The market reaction to the above statement was that it signaled a dovish pivot by the Fed chair. In particular the key words that the market consensus took away from the above statement were “just below” what would be “neutral”. It seemed to suggest to the markets that the pace of rate rises might be slower than expected. This offered a much needed reprieve for the markets. It seems that the Fed giveth and the Fed taketh.
There were some bright spots with Healthcare being the top performing sector rising 6.8% closely followed by consumer discretionary which benefited from Black Friday and Cyber Monday. Energy and technology continued their downward trajectory due to concerns over a global supply glut in Oil and the risk-off sentiment.
Europe's woes continued last month as worries around Eurozone Growth, corporate leverage, trade wars and policy hurdles continued to build. The MSCI EMU index returned -0.9% with pain especially evident in economically cyclical sectors including technology and Materials. Underlying data also suggests the prospect of a prolonged period of stagnation. Both leading and lagging indicators suggest that while they are not especially recessionary they also do not show any signs of significant expansion. Major European markets were lower with the STOXX Europe 600 Index losing 5.5% on a total return basis.
Concerns around Brexit and the inability of the May government to reach a mutually agreeable deal (one that might be palatable to parliament) with the EU seemed increasingly unlikely. This has put further downward pressure on the Sterling and it is increasingly seeming as though we might see the FTSE100 falling at the same time as the GBP over a sustained period of time. For those unaware, this is usually an inverse correlation since a falling pound would be typically beneficial for companies that have a global revenue base reporting in local currency.
The European Commission rejected the draft plans of the Italian government pertaining to the 2019 budget recommending procedures for disciplinary action against the nation-state.
Emerging Markets finally got a much needed reprieve in November generally outperforming the developed markets. The best performers were South Africa, Turkey and India, all significant net importers of crude and benefited substantially from the falls in Oil prices and the markets perception of a dovish pivot by the Fed. Conversely Latin America, especially Mexico and Brazil continued to be drags hampered by political uncertainty. Though markets have so far looked upon the election President Bolsanaro rather favourably hoping for fiscal discipline going forward.
In Asian Markets, China held up well buoyed by increased exports and industrial production, although retail spending continued to be a drag. The meeting between Presidents Xi and Trump at the G20 and the prospect of ceasefire also further put some momentum back into the equity markets. However, South Korea and Taiwan have been rather disappointing following corporate earnings downgrades, concerns around household debt and the Seoul Housing Market. In Taiwan the sell-off was very much led by government instability and a sell off in technology and healthcare heavyweights.
Markets & Commentary
At TAMIM we are committed to educating investors on how best to manage their retirement futures.
Sign up to receive our weekly newsletter:
TAMIM Asset Management provides general information to help you understand our investment approach. Any financial information we provide is not advice, has not considered your personal circumstances and may not be suitable for you.