Jacqui Sherlock

Month in Review as at May 2024

Index returns at May 2024 (%)

_{Data source: Bloomberg & Financial Express. Returns greater than one year are annualised.
Commentary regarding equity indices below references performance without including the effects of currency (unless specifically stated).}

Key Market Points

• The Australian market gained 0.9% during May with Information Technology leading all sectors.
• Most overseas markets finished the month higher. US markets rallied strongly with the S&P 500 gaining 5.0%. European markets, represented by the FTSE Eurotop 100 Index, were also up 2.9%.

Australian equities 

The ASX 200 Index recorded a modest 0.9% gain in May. There was a broad dispersion of returns at the sector level. Information Technology (I.T.) led all sectors (+5.5%), while Utilities (+3.4%), Financials ex-Property (2.6%) and Property (+1.9%) also saw solid returns. Communications (-2.6%) experienced the most significant downturn. Consumer Staples (-1.0%), Energy (-0.7%) and Consumer Discretionary (-0.6%) were other laggards.

A further rise in the consumer price index has, seemingly, raised the chances of the Reserve Bank of Australia (RBA) keeping interest rates steady and has blunted the market’s risk sentiment. Despite this, I.T. has maintained its impressive performance in 2024, mirroring the surge in the tech-dominated U.S. Nasdaq Index. Meanwhile, investors are still showing interest in Utilities. A strong result in May consolidated 13.5% returns over three months for the sector.

As consumer pressures persist, the outlook weakens for sectors with higher exposure, particularly Consumer Discretionary. This was evident in weak profit guidance from the nation’s largest car dealership group, Eagers Automotive (ASX: APE), resulting in a 20% drop in its share price.

Global Equities 

Emerging markets underperformed developed markets in May returning -1.81% (MSCI Emerging Markets Index (AUD)) versus a 2.02% return (MSCI World Ex- Australia Index (AUD)) as large and mid-cap markets continue to outperform small cap markets.

US indices rallied into the end of the month as further evidence of a disinflationary environment boosted markets. The Nasdaq, Dow Jones and S&P500 all hit new all-time highs during the month as the Tech sector continued to gain on AI trades and strong earnings.

More than half of the S&P 500’s gains for the month were attributed to Nvidia, Apple, Microsoft and Alphabet. The S&P500 gained 4.96% (in local currency terms) while the Nasdaq Composite gained 7.0% (in local currency terms).

European markets were mostly higher despite higher than anticipated inflation, while UK inflation continued to ease with a drop in headline inflation. The FTSE 100 Index and DAX 30 Index gained 2.08% and 3.16% respectively (in local currency terms).

Property 

The S&P/ASX 200 A-REIT Accumulation index progressed during May, with the index finishing the month 1.9% higher. Global real estate equities also performed well, advancing 3% for the month. Australian infrastructure performed strongly during May, with the S&P/ASX Infrastructure Index TR returning 2.9% for the month and up 2.9% YTD.

The Australian residential property market experienced an increase of +0.8% Month on Month (as represented by CoreLogic’s five capital city aggregate). Perth was the biggest riser (+2%), followed by Adelaide (+1.8%) and Brisbane (+1.5%). In contrast, Melbourne (+0.1%) was the worst performer during May.

Fixed Income 

In its May meeting, the RBA decided to leave the cash rate target unchanged at 4.35%, with the board expecting that it will be some time before inflation is sustainably low, with the RBA’s updated economic projections showing inflation slowly returning to target over the next few years.

Australian bond yields were relatively stable over the course of the month, with 2- Year Bond yields rising 3 basis points and 10-Year Bond yields falling 1 basis point. The Australian fixed income market, as measured by the Bloomberg AusBond Composite 0+ Yr Index, returned 0.39% month-end to month-end. CPI numbers in April came back higher than expected at 3.6% and the unemployment rate rose to 4.1% in May.

In the U.S, the Federal Reserve had a similar view and unanimously voted to hold policy rates steady, maintaining the federal funds target rate at 5.25-5.5%. Unlike the Australian market, the U.S bond market gained strength in May with U.S 2-Year and 10-Year Treasury Note yields dropping 17 and 18 basis points respectively. Softer inflation numbers and a cooling job market resulted in a drop in the Treasury yield curve, with the market pricing in at least one rate cut in 2024.

Key Economic Points 

• The RBA left the cash rate at 4.35% in its May meeting.
• Australian annual inflation came in above expectations at 3.6% in April.
• Australian GDP growth came in at 1.1% for the March quarter.

Australia 

The RBA left interest rate unchanged at 4.35% in its May meeting, however worse than expected inflation figures have put back the prospect of a cut until late 2025. The annual inflation rate in April came in at 3.6%, above the expected 3.4%. RBA forecasts it will take until late 2025 for inflation to come back to the 2-3% target range. Financial markets are fully pricing in a first RBA rate cut only by the middle of 2025.

Retail sales figures for April rose 0.1% with spending remaining subdued as cautious consumers have reduced discretionary spending. Annual growth was 1.3%, indicating falling demand once price inflation is stripped out.

These results further complicate the RBA’s role in steering inflation back towards a 2-3% target range without incrementally weakening the domestic economy.

GDP growth for the Q1 2024 was confirmed at only +0.1%, below market expectations. The annual growth rate of the economy has slowed to +1.1%, down from +1.5% during calendar year 2023, but upward revisions to Q4 2023 indicated surprising momentum and may have further reduced prospects for a local rate cut this year.

The unemployment rate rose to 4.1% in April, above the anticipated 3.9%. The Westpac-Melbourne Institute Index of Consumer Sentiment edged down to 82.2 in May, falling for a second consecutive month, as sticky inflation and higher interest rates continue to weigh on households.

Composite PMI decreased to 52.1 in May, indicating a slower pace of growth than previous months. The NAB business confidence index remained at 1 in April, with sentiment weak in retail, wholesale and mining.

The trade surplus widened to $6.55 billion in April, well below the market forecast of $7.3 billion.

US 

GDP growth rate for Q1 2023 came in line with forecasts at 1.3%, down from the 3.4% in the previous quarter. Performance was mostly driven by a downward revision in consumer spending.

The Federal Reserve kept the target range for the federal funds rate unchanged at 5.25-5.50% during its May meeting for the sixth consecutive time, as ongoing inflationary pressures and a tight labour market indicate a stall in progress toward bringing inflation back down to its 2%. Annual inflation eased to 3.4% in April, in line with market expectations as inflation steadied for food and shelter.

The economy added 272,000 jobs in May, well above forecasts of 185,000 and the most growth in five months. The unemployment rate rose to 4.0%, against expectations of a flat reading at 3.9%.

Retail sales were unchanged in April, below the anticipated 0.4%, suggesting consumer spending has eased slightly. Annual retail sales grew 3.0% for the year to April, below the expected 3.8% increase. Consumer sentiment dropped to 69.1 in May, well below April’s 77.2, attributed to concerns over inflation and the labour market on consumers.

Composite PMI rose to 54.5 in May, as growth accelerated in both manufacturing and services. The trade deficit widened to US$74.6 billion in April, below forecasts of a US$76.1 billion gap.

Euro area 

The inflation rate in the Euro area rose for the first time in five months to 2.6% in May, up on the 2.5% expected and the 2.4% reported in the prior period. Prices were higher for energy and services, with a slowdown in inflation for food, alcohol and tobacco, and non-energy industrial goods.

The unemployment rate declined to 6.4% in April, below the market forecast 6.5%. Retail sales declined 0.5% in April, below the anticipated 0.3%. Annual retail sales were flat, below the expected 0.1% rise. Consumer confidence rose to -14.3 in May, driven by slowing inflation and expectations of an imminent rate cut by the ECB. The Composite PMI rose to 52.2 in May, as stronger demand boosted output and hiring.

UK 

Early estimates suggested that the British economy grew 0.6% on quarter in the first three months of 2024, above forecasts of 0.4%, and ending the recession it entered last year. It also marks the strongest expansion in over two years, with services rising 0.7% amid widespread growth across the sector.

The annual inflation rate eased to 2.3%, slightly above the market forecast of 2.1%. The largest downward pressure came from falling gas and electricity costs, due to the lowering of the energy price cap in April.

Consumer confidence rose to -17 in May, improving for the second month, however the cost-of-living crisis and high borrowing costs continue to weigh on sentiment. Retail sales fell 2.3% in April, compared to the expected 0.4% decline, while annual sales decreased by 2.7%, well down on the anticipated 0.4% drop.

The unemployment rate for the three months to April rose to 4.4% as manufacturing, retail and hospitality employers cut jobs. At the same time, wage growth remains strong at 6.4%, helped by April’s 10% increase to the National Living Wage. The Bank of England is unlikely to cut interest rates until August at the earliest until wage rises moderately.

Composite PMI fell to 53.0 in May, driven by solid growth in services activity. Prime Minister Rishi Sunak unexpectedly called a general election for July 4, hoping to capitalise on improved economic conditions.

China 

The Chinese economy grew by a seasonally adjusted 1.6% in Q1 2024, quickening from an upwardly revised 1.2% increase in the previous quarter. This brings annual growth in the same period to 5.3%, mainly driven by exports and manufacturing investment.

Challenges persist in real estate and local government investments, continuing to hinder economic growth. Inflation in China increased 0.1% in April, with the annual rate coming in at 0.3%, above the market forecast of 0.1%.

China’s unemployment rate decreased to 5.0% on April, below the expected 5.2%. Composite PMI dropped to 51.0 in May as factory activity dropped for the first time since February and services growth was soft. Annual retail sales were weaker at + 2.3% in April, the softest gain in 15 months and missing the market forecast of 3.8%.

Japan 

Japanese core CPI inflation slowed for the second month to an annual rate of +2.5% as food, healthcare and education rises moderated. In a public speech, the Bank of Japan’s Governor Ueda declared that the bank will “proceed cautiously” with its monetary policy, suggesting that further interest rate hikes may be postponed into next calendar year.

Retail sales increased 1.2% in April, rebounding from March’s 1-1.2%, with annual sales growing 2.4%, well above the 1.9% forecast. Consumer confidence dropped to 36.2 for May, well below market expectations of 38.9, and is at its lowest level since November 2023. Composite PMI rose marginally to 52.6 in May, as manufacturing output stabilised and the services economy remained robust.

Currencies 

The Australian dollar (AUD) appreciated over the month of May, closing 1.5% higher in trade weighted terms to 63.1, appreciating against all four referenced currencies in this update.

The AUD experienced its largest monthly gain against the USD since December. The exchange rate rose as the USD weakened following a lacklustre US employment report, which increased market expectations for Fed rate cuts this year. Mid-month, news of slowing April inflation further supported these expectations after three months of weak CPI data. The AUD was among the strongest in the G10 currency basket, finishing the month at an 11-year high against the Japanese Yen (JPY).

Relative to the AUD, the Pound Sterling (GBP) depreciated the least during the month, closing 0.7% lower. The laggard of the month was the USD, depreciating in relative terms against the AUD by 2.6%. Year-on-year, the AUD is ahead of the USD, GBP, Euro (EUR) and JPY by 2.9%, 0.1%, 0.9% and 15.9%, respectively.

Important notice

_{This document is published by Lonsec Research Pty Ltd ABN 11 151 658 561, AFSL No.421445 (Lonsec). Please read the following before making any investment decision about any financial product mentioned in this document.
Disclosure at the date of publication: Lonsec receives a fee from the fund manager or product issuer(s) for researching the financial product(s) set out in this document, using comprehensive and objective criteria. Lonsec may also receive a fee from the fund manager or product issuer(s) for subscribing to research content and other Lonsec services. Lonsec’s fee is not linked to the rating(s) outcome.
Lonsec does not hold the product(s) referred to in this document. Lonsec’s representatives and/or their associates may hold the product(s) referred to in this document, but details of these holdings are not known to the Analyst(s).
Disclosure of Investment Consulting services: Lonsec receives fees for providing investment consulting advice to clients, which includes model portfolios, approved product lists and other financial advice and may receive fees from this fund manager or product issuer for providing investment consulting services. The investment consulting services are carried out under separate arrangements and processes to the research process adopted for the review of this financial product.
For an explanation of the process by which Lonsec manages conflicts of interest please refer to the Conflicts of Interest Policy which is found at: http://www.lonsec.com.au/aspx/IndexedDocs/general/LonsecR esearchConflictsofInterestPolicy.pdf
Warnings: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is a “class service” (as defined in the Financial Advisers Act 2008 (NZ)) or limited to “General Advice” (as defined in the Corporations Act 2001(Cth)) and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (‘financial circumstances’) of any particular person. It is not a “personalised service” (as defined in the Financial Advisers Act 2008 (NZ)) and does not constitute a recommendation to purchase, redeem or sell the relevant financial product(s).
Before making an investment decision based on the rating(s) or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances or should seek independent financial advice on its appropriateness. If our advice relates to the acquisition or possible acquisition of particular financial product(s), the reader should obtain and consider the Investment Statement or Product Disclosure Statement for each financial product before making any decision about whether to acquire a financial product. Lonsec’s research process relies upon the participation of the fund manager or product issuer(s). Should the fund manager or product issuer(s) no longer be an active participant in Lonsec’s research process, Lonsec reserves the right to withdraw the document at any time and discontinue future coverage of the financial product(s).}

Month in Review as at April 2024

Index returns at April 2024 (%)

_{Data source: Bloomberg & Financial Express. Returns greater than one year are annualised.
Commentary regarding equity indices below references performance without including the effects of currency (unless specifically stated).}

Key Market Points

• The Australian market was weaker in April, finishing the month 2.9% lower. Leading the market lower were the Property, Consumer Discretionary and Communications sectors. The only sectors finishing the month stronger were Utilities and Materials.
• Most developed markets finished the month lower, with falls in the US and Europe. The UK and Asian markets finished the month higher.

Australian equities 

Following a run of gains, the ASX 200 finished April down 2.9%, the Index’s first negative month since October 2023. Losses were felt broadly at the sector level, with Property (-7.8%), Consumer Discretionary (-5.1%), Communications (-4.9%) and Energy (-4.7%) seeing the biggest falls. Utilities (+4.8%) and Materials (+0.6%) were the only sectors which had a positive month.

The evolving interest rate environment was a significant contributor to the losses seen in the market, as data both locally and abroad pointed towards fewer rate cuts this year. This was most obvious in the rate-sensitive sectors, with Property being the most notable. Consumer Discretionary shares were hit by rate sentiment, while also being dragged down by The Star Entertainment Group (ASX: SGR), whose shares plunged by nearly 30% in the month. The Energy sector had a weak month despite accommodating oil prices.

As market volatility and geopolitical uncertainty was amplified in April, the market flocked to Utilities, as the defensive sector became a haven for investors. AGL Energy Limited (ASX: AGL) was a strong performer for the sector as it closed the month up 13.4%, after a class action proceeding was dismissed.

Global Equities 

Developed equity markets finished lower, ending a five-month rally, while Emerging markets continue to gain. Developed markets in April returned -3.26% (MSCI World Ex-Australia Index (AUD)) versus a 0.92% return from Emerging Markets (MSCI Emerging Markets Index (AUD)).

US indices declined for the first time since October as the likelihood of a Federal Reserve rate cut lowered. Sentiment has shifted in the market to expectations of a 25-basis point rate cut by the end of the year as the Fed searches for clearer signs of further deflation.

The Nasdaq 100 dropped -4.4% for the month (in local currency terms), while the S&P 500 lost -4.08% for the month (in local currency terms). However, despite the macro-outlook, corporate earnings were generally positive with a higher-than-expected growth rate.

Japan similarly lost hard fought gains as the market mirrored wall street and the tech-sector lost favour. The Nikkei 225 Index dropped -4.86% for the month (in local currency terms).

The CSI 300 and Hang Seng gained 2.01% and 7.45% (in local currency terms), respectively. This reflects a continuing rebound from a tumultuous beginning of the year, boosted by strong GDP growth and PMI expansion.

Property 

The S&P/ASX 200 A-REIT Accumulation index regressed for the first time this year in April, with the index finishing the month 7.8% lower. Global real estate equities (represented by the FTSE EPR/NAREIT Developed Ex Australia Index (AUD Hedged)) also performed poorly, falling 5.1% for the month.

Australian infrastructure continued its slight negative trend through April, with the S&P/ASX Infrastructure Index TR returning -0.1% for the month and -0.1% YTD.

Fixed Income 

April was a tough month for bond markets, both locally and internationally, with yields back at levels last seen in December 2023. Over the month price pressures remained stubborn, CPI numbers came in higher than expected and the housing market continued to rise.

Against this backdrop, Australian 2- and 10- Year bond yields rose 33 and 41 basis points respectively over the course of the month and the Australian bond market, as measured by the Bloomberg AusBond Composite 0+ Yr Index, fell 1.98%.

Globally, bonds markets exhibited a similar story. US inflation remained sticky, and markets shifted their stance on any near-term rate cuts from the Fed. US 2- and 10- Year bond yields rose 42 and 77 basis points respectively over April, and the Bloomberg Global Aggregate Index was down 2.07%. The latest batch of US economic data exhibited strong evidence that inflation remains hot, with markets pricing in only one rate cut in 2024 from the Fed with expectations that that a much tougher stance on inflation will be taken.

Key Economic Points 

• Australian annual inflation was 3.6% in the March quarter.
• Major central banks left rates on hold, continuing with the wait and see approach to inflation.

Australia 

Annual inflation came in at 3.6% for the March quarter, down from 4.1% in the December quarter, but above market expectations of 3.4%, stoking the possibility of further interest rate increases. Most concerning for the RBA was the strength in the trimmed mean inflation rate, which was higher than both the market expectations and the December quarter figure, with inflation particularly sticky across the services and housing sectors.

Retail sales figures for March were weaker than expected, declining 0.4% from February’s levels, and gaining only 0.8% compared to March 2023, representing a decline in sales volume once adjusted for inflation over that period. This and other recent indications of a weakening domestic economy have complicated the deliberations of the RBA, with the financial markets now anticipating that the local cash rate could finish the year higher than the current 4.35%.

The unemployment rate rose to 3.8% in March, below the anticipated 3.9%. The Westpac-Melbourne Institute Index of Consumer Sentiment fell to 82.4 in April as persistent inflation and high interest rates continued to weigh on Australian households.

Composite PMI decreased to 53 in April, indicating a slightly slower pace of growth than previous months. The NAB business confidence index rose to 1 in March and while this is below the long-run average, sentiment has improved in retail, construction and transport.

The trade surplus fell to $5.0 billion in March, well below the market forecast of $7.3 billion.

US 

The US Federal Reserve kept interest rates on hold, as widely expected, however Chairman Jerome Powell noted that it may take longer than previously expected for policymakers to become comfortable that inflation was on track towards the Fed’s 2% target.

Annual inflation growth was 3.6% in March, above the expected 3.4%, largely due to energy and transport costs.

Larger than expected increases in labour costs also added to concerns about persistent inflation. The US Labor Department’s employment cost index rose 1.2% in the first quarter of 2024, an acceleration from the +0.9% rate in the three months to December. Private sector wages also accelerated to +1.1% in the March quarter.

The economy added 175,000 jobs in April, well short of the anticipated 243,000, underscoring a significant slowdown in the jobs market. The unemployment rate rose to 3.9%, against an expected 3.8%.

Retail sales rose 0.7% in March, well above the anticipated 0.3% gain, suggesting consumer spending remains robust. Annual retail sales grew 4.0% for the year to March, ahead of the anticipated 2.5% increase. Consumer sentiment dropped to 77.2 in April from 79.4 in March, with concerns about the nation’s economic future pending the outcome of the presidential election.

Composite PMI eased to 51.3 in April just below the anticipated 52.2. Despite this fall it represents an uptick in factory activity.

The trade deficit was US$69.4billion in March, above the anticipated US$69.1 billion.

Euro area 

Headline CPI inflation remained at +2.4% for the 12 months to April, while Core inflation decelerated only slightly to +2.7%, both rates were higher than anticipated. The region’s GDP growth for the March quarter was also better than expected at +0.3%, helped by Germany’s return to growth.

The European Central Bank (ECB) maintained its interest rates at 4.5% during its April meeting and despite the previously mentioned sticky inflation, recent comments from policymakers still suggest that a rate cut is likely in June.

The unemployment rate remained at a record low of 6.5% in March, in line with market forecasts.

Retail sales jumped 0.8% in March, reversing the 0.3% fall in February and ahead of the anticipated 0.6%. Annual retail sales grew 0.7%, well above the anticipated -0.3%. Consumer confidence rose to -14.7 in April suggesting a gradual brightening of views on both personal and general economic situations. Whilst encouraging, this figure is still well below the long-term average.

The Composite PMI rose to 51.7 in April, driven by an uptick in services activity.

UK 

Inflation rose by 0.6% in April, with the annual rate falling to 3.2%, both driven by a slowdown in increases in food prices.

Consumer confidence rose to -19 in April, improving for the first time in three months and coming in above market expectations of -20. The index has been ranging between -24 and -19 for the last six months, indicating slow progress as economic uncertainties continue to weigh heavily on households.

Retail sales were flat in March, compared to the expected 0.3% increase, while annual sales increased 0.8%, just above the anticipated 0.7%. Conditions remain delicate as price rises have been blamed for many retailers having a difficult start to the year. The expected uptick in spending from lower inflation and January’s cut to National Insurance is yet to materialise.

Composite PMI rose to 54.1 in April, driven by the robust and accelerated upturn in services activity.

China 

Inflation in China dropped 1% month on month in March, compared to the market estimate of -0.5%. Annual inflation rose 0.1% for the year to March, below the expected 0.4% rise, as the effects of Lunar New Year spending waned.

China’s unemployment rate dropped marginally to 5.2% in March, in line with market expectations.

Composite PMI edged up to 52.8 in April, with the growth of the manufacturing sector being the highest in 14 months and services activity supporting this long run of expansion.

Business sentiment remained unchanged from March.

Annual retail sales grew 3.1% in March, well short of the expected 4.5%. Consumer confidence remains subdued at 89.1 in February, well below the long-term average of 109.85.

Japan 

The Bank of Japan (BOJ) maintained the cash rate at the 0% to 0.1% range at its April meeting, having raised it for the first time in 16 years in March. The Yen fell to near record lows following the March decision and remains weak, putting additional cost pressures on both businesses and households.

Retail sales declined 1.2% in March, missing market expectations for 0.6% growth. Annual sales grew 1.2%, slowing from 4.7% in February and well below the anticipated 2.5%.

Composite PMI rose to 52.3 in April with services activity expanding and factory activity stabilizing following declines in the last ten months.

Currencies 

The Australian dollar (AUD) appreciated over the month of April, closing 1.1% higher in trade weighted terms to 62.2, appreciating against the Japanese Yen (JPY), Pound Sterling (GBP) and Euro (EUR).

The AUD weakened against the US dollar (USD), marking its third monthly decline in four months. Initially, the AUD saw gains due to soft US economic data and dovish remarks from Fed Chair Jerome Powell. However, it slid as US CPI inflation and geopolitical tensions rose. A rebound followed with improved Australian inflation data, but strengthened US labour costs pushed the USD higher again. Overall, the AUD strengthened against the G10 currency basket.

Relative to the AUD, the USD led the pack during the month, appreciating by 0.5%. The laggard of the month was the JPY, depreciating in relative terms against the AUD by 3.6%. Year-on-year, the AUD remains behind the GBP and USD by -1.5% and -1.9% respectively, whilst ahead of the JPY and EUR by 13.3% and 1.2% respectively.

Important notice

_{This document is published by Lonsec Research Pty Ltd ABN 11 151 658 561, AFSL No.421445 (Lonsec). Please read the following before making any investment decision about any financial product mentioned in this document.
Disclosure at the date of publication: Lonsec receives a fee from the fund manager or product issuer(s) for researching the financial product(s) set out in this document, using comprehensive and objective criteria. Lonsec may also receive a fee from the fund manager or product issuer(s) for subscribing to research content and other Lonsec services. Lonsec’s fee is not linked to the rating(s) outcome.
Lonsec does not hold the product(s) referred to in this document. Lonsec’s representatives and/or their associates may hold the product(s) referred to in this document, but details of these holdings are not known to the Analyst(s).
Disclosure of Investment Consulting services: Lonsec receives fees for providing investment consulting advice to clients, which includes model portfolios, approved product lists and other financial advice and may receive fees from this fund manager or product issuer for providing investment consulting services. The investment consulting services are carried out under separate arrangements and processes to the research process adopted for the review of this financial product.
For an explanation of the process by which Lonsec manages conflicts of interest please refer to the Conflicts of Interest Policy which is found at: http://www.lonsec.com.au/aspx/IndexedDocs/general/LonsecR esearchConflictsofInterestPolicy.pdf
Warnings: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is a “class service” (as defined in the Financial Advisers Act 2008 (NZ)) or limited to “General Advice” (as defined in the Corporations Act 2001(Cth)) and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (‘financial circumstances’) of any particular person. It is not a “personalised service” (as defined in the Financial Advisers Act 2008 (NZ)) and does not constitute a recommendation to purchase, redeem or sell the relevant financial product(s).
Before making an investment decision based on the rating(s) or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances or should seek independent financial advice on its appropriateness. If our advice relates to the acquisition or possible acquisition of particular financial product(s), the reader should obtain and consider the Investment Statement or Product Disclosure Statement for each financial product before making any decision about whether to acquire a financial product. Lonsec’s research process relies upon the participation of the fund manager or product issuer(s). Should the fund manager or product issuer(s) no longer be an active participant in Lonsec’s research process, Lonsec reserves the right to withdraw the document at any time and discontinue future coverage of the financial product(s).}

Month in Review as at March 2024

Index returns at March 2024 (%)

Data source: Bloomberg & Financial Express. Returns greater than one year are annualised.

Commentary regarding equity indices below references performance without including the effects of currency (unless specifically stated).

Key Market Points

• The Australian market had a strong month in March, finishing 3.3% higher. Leading the market higher were Property, Energy and Utilities. The only sector finishing the month lower was Communications.
• Overseas markets also finished the month materially higher, with strong gains seen across the US, Europe and the UK.

Australian equities 

The ASX 200 rose 3.3% in March, with the strong month punctuated by gains seen in ten of eleven sectors.

Property delivered the largest returns (+9.7%), while Energy (+5.3%) and Utilities (+4.8%) were other market-leaders. Despite only a minor retraction (-0.6%), Communications finished as the only sector in the red.

Despite mixed macro data releases, Property was the beneficiary of stabilising bond yields, slowing inflation, and a more dovish tone from the RBA. The market sentiment pointing towards a rate cut in late 2024 was a positive factor for the rate-sensitive sector. Of the individual constituents, McGrath Ltd (ASX: MEA) rose significantly after shareholders received a takeover bid.

Energy stocks clawed back some of the losses from February, with a few factors contributing to the uptick. Perhaps most importantly, OPEC+ members extended production cuts, a major contributor to rebounding oil prices. As a result, shares in stocks such as Santos (ASX: STO) and Beach Energy (ASX: BPT) saw significant rises.

In the first quarter of 2024, the ASX 200’s 5.3% gain was outpaced by major global indices, with the Japanese Nikkei up 18.1%, the S&P 500 up 10.6%, and major European stocks up 8.4%.

Global Equities 

Global equity markets continued to rally, finishing Q1 on record highs. Emerging markets underperformed developed markets in March returning 2.28% (MSCI Emerging Markets Index (AUD)) versus a 3.02% return (MSCI World Ex-Australia Index (AUD)).

US indices continued to beat all-time highs, as market momentum boosted investor confidence and the Fed reiterated their commitment to three rate cuts in 2024. The Nasdaq Composite gained 1.8% for the month and 9.3% for the quarter (in local currency terms), while the S&P 500 gained 3.2% for the month and 10.6% for the quarter (in local currency terms), up 26.1% over five straight months of gains.

Japan similarly continued to extend its all-time high, the Nikkei 225 Index gaining 3.78% for the month (in local currency terms), as continued low interest rates and a weaker Yen drive growth.

The CSI 300 and Hang Seng gained 0.61% and 0.64% (in local currency terms), respectively. After a strong lunar new year, demand turned headline inflation positive and the annual National People’s Congress revealed a 5% growth target for 2024. This all comes despite the continued slowdown in the property sector and a 10- month low in the iron ore price.

Property 

The S&P/ASX 200 A-REIT Accumulation index continued the strong start to the year in March, rallying 9.7%. Global real estate equities (represented by the FTSE EPR/NAREIT Developed Ex Australia Index (AUD Hedged)) finished 3.5% higher.

The AREIT index outperformed the broader markets buoyed by a fall in the Australian 10-year bond rate and continued M&A activity and transaction markets opening.

Fixed Income 

Exhibiting a continued hawkish stance, the RBA has held the cash rate at 4.35% for the third straight meeting this year. Australian bond markets remained relatively unchanged with 10- and 2- Year Bond yields falling 5 and 4 basis points respectively over the course of the month. The Australian economy continues to show signs of progress, with the market anticipating rate cuts by the end of 2024. Against this backdrop, the Bloomberg AusBond Composite 0+ Yr Index returned 1.12% over the course of the month.

Globally, The US economy has remained resilient despite The Fed’s efforts to cool inflation by keeping interest rates at their 23-year high following their March meeting. US 2-Year Treasury Note yields were unchanged month-end to month-end, while 10-year Treasury yields rose 29 basis points. The sell-off comes as investors become less optimistic on expected rate cuts.

In the UK, the Bank of England board is determined to meet the 2% inflation target and has voted to maintain the Bank Rate at 5.25%. UK 2- and 10- Year Gilt yields fell 41 and 28 basis points respectively. This follows the announcement of a historic gilt issuance, with the UK to sell £265bn of gilts.

Key Economic Points 

• Australian inflation was flat at 3.4% in February.
• Major central banks left rates on hold, continuing with the wait and see approach to inflation.
• The RBA left rates at 4.35% with markets anticipating a 0.25% rate cut in November.

Australia 

The RBA left the cash rate at 4.35%, as widely expected. However, the accompanying commentary suggested that the bank’s previous bias towards further rate hikes had moderated to a more neutral stance. Governor Michele Bullock stated that “the Board is not ruling anything in or out”. Financial markets now anticipate a first 0.25% rate cut in November this year.

Annual inflation remained at 3.4% in February. This result was slightly below expectations of 3.5%, but there are mixed views amongst economists on the implications for RBA policy. Financial markets continue to price in a first interest rate cut in November this year for Australia, later than expectations for the other major Western economies.

The unemployment rate fell to 3.7% in February, below the anticipated 4.0%, with commentators suggesting the topsy turvy nature of the labour market reflects changes to the way and time we work throughout the year.

The Westpac-Melbourne Institute Index of Consumer Sentiment fell to 84.4 in March, amid renewed concerns about the economy and family finances. Retail sales rose 0.3% in February, matching market estimates but slowing sharply from January’s +1.1%. The annual rate increased 1.6%.

Composite PMI rose to 53.3 in March, driven by strong growth in the services sector. The NAB business confidence index dropped back to 0 in February with the retail sector being the major drag amid high borrowing costs and elevated inflation.

The trade surplus fell to $7.3 billion in January, below the market forecast of $9.9 billion.

US 

The Federal Reserve maintained interest rates at 5.25 – 5.5% but upgraded its expectations for US economic growth in 2024 from +1.4% to +2.1%. Financial markets were relieved that Fed policymakers maintained their expectation for three interest rate cuts in 2024.
Headline inflation growth was 3.5% for the year to March, above the expected 3.4%, largely due to shelter and gasoline costs.

The economy added 303,000 jobs in March, well above the anticipated 200,000. Unemployment fell to 3.8%, against an expected 3.9%.

Retail sales rose 0.6% in February, below the anticipated 0.8% gain. Such a modest increase suggests a potential slowdown in consumer spending. Annual retail sales grew 1.5% for the year to February, ahead of the anticipated 1% increase.

Composite PMI fell marginally to 52.1 in March just below the anticipated 52.2, and despite this fall it represents an uptick in factory activity. Consumer sentiment increased to 79.4 in February, reflecting a rosier outlook on inflation and business conditions.

The trade deficit widened to US$68.9 billion in February, above the anticipated US$67.3 billion.

Euro area 

The European Central Bank (ECB) maintained its interest rates at 4.5% during its March meeting as policy makers try to balance concerns over a looming recession with elevated underlying inflationary pressures.

The inflation rate for March came in at 0.8%, below market expectations of 0.9%, keeping the annual rate steady at 2.4% (versus the expected 2.6%). The ECB has projected inflation to average 2.3% in 2024, 2.0% in 2025 and 1.9% in 2026.

The unemployment rate came in at 6.5% in January, just above the market forecast of 6.4%.
Retail sales fell 0.5% in February, just above the expected -0.4%. Annual retail sales fell 0.7%, better than the anticipated -1.3%. Consumer confidence rose to -14.9 in March as consumers are gradually brightening their views on both their personal and general economic situations.

The Composite PMI rose to 49.9 in March, the highest in nine months, and indicating a near-stabilization of business activity.

UK 

The Bank of England maintained the bank rate at 5.25% in its March meeting as policymakers wait for clearer signals that the country’s persistent inflationary pressures have subsided.

Annual CPI fell to 3.4% in February with the Bank projecting inflation to fall below 2% in Q2 2024.

Composite PMI edged down to 52.9 in March, from 53 in February and just below the expected 53.1. Even so, this was the fifth month of expansion in the private sector thanks to a solid rate of increase in output. Service sector growth was quicker than that seen in the manufacturing sector, despite losing momentum in March.

Consumer confidence was unchanged at -21 in March, below the expected -19, as cost of living concerns continue to dampen sentiment.

China 

China’s unemployment rate increased to 5.3% in February, higher than the previous month, but below the 5.5% government target.

Composite PMI was at 52.7 in March, the highest reading in ten months, and both manufacturing and services activity expanded. Business sentiment has improved for both manufacturers and services providers with the measures introduced earlier in the year to stabilise growth gradually having an effect.

Annual retail sales grew 5.5% in the January-February period, above the market expectation of 5.2%.

Profits from industrial firms rose 10.2% for the first two months of 2024 compared to last year. Coupled with better-than-expected growth in retail sales, exports and factory output for the same period suggests that, aside from the still-struggling property sector, the Chinese economy is gradually recovering.

Japan 

The Bank of Japan (BOJ) raised its cash interest rate, which had been -0.10% since 2016, to between zero and +0.10%. The BOJ also opted to officially end its “Yield Curve Control” policy of buying government bonds to maintain yields below a cap of 1.0%.

These moves were generally anticipated by financial markets and the accompanying commentary was at the “dovish” end of expectations, particularly assurances that “accommodative financial conditions would be maintained for the time being.”

The Japanese equity market rose, and the yen fell on the news, suggesting that more substantial monetary tightening measures had previously been priced in.

Producer inflation came in at 0.8% over the year to March, meeting expectations and marking the strongest reading since October 2023.

Currencies 

The Australian dollar (AUD) appreciated over the month of March, closing 0.7% higher in trade weighted terms to 61.5, appreciating against the Japanese Yen (JPY), US Dollar (USD), Pound Sterling (GBP) and Euro (EUR).

The AUD emerged as the top performer among G10 currencies in March, propelled by robust market sentiment that pushed global equities to record highs. The AUD surged to its highest point in two months, following the release of a strong Australian February employment report. Despite a discernible downtrend in the latter part of the month, the AUD managed to secure its first monthly gain against the USD for 2024.

Relative to the AUD, the GBP depreciated the least during the month, closing 0.3% lower. The laggard of the month was the JPY, depreciating in relative terms against the AUD by 1.2%. Year-on-year, the AUD remains behind the GBP, EUR, and USD by -4.8%, -2.1% and -2.5% respectively, whilst ahead of the JPY by 11.1%.

Important notice: This document is published by Lonsec Research Pty Ltd ABN 11 151 658 561, AFSL No.421445 (Lonsec). Please read the following before making any investment decision about any financial product mentioned in this document.

Disclosure at the date of publication: Lonsec receives a fee from the fund manager or product issuer(s) for researching the financial product(s) set out in this document, using comprehensive and objective criteria. Lonsec may also receive a fee from the fund manager or product issuer(s) for subscribing to research content and other Lonsec services. Lonsec’s fee is not linked to the rating(s) outcome.

Lonsec does not hold the product(s) referred to in this document. Lonsec’s representatives and/or their associates may hold the product(s) referred to in this document, but details of these holdings are not known to the Analyst(s).

Disclosure of Investment Consulting services: Lonsec receives fees for providing investment consulting advice to clients, which includes model portfolios, approved product lists and other financial advice and may receive fees from this fund manager or product issuer for providing investment consulting services. The investment consulting services are carried out under separate arrangements and processes to the research process adopted for the review of this financial product.

For an explanation of the process by which Lonsec manages conflicts of interest please refer to the Conflicts of Interest Policy which is found at: http://www.lonsec.com.au/aspx/IndexedDocs/general/LonsecR esearchConflictsofInterestPolicy.pdf

Warnings: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is a “class service” (as defined in the Financial Advisers Act 2008 (NZ)) or limited to “General Advice” (as defined in the Corporations Act 2001(Cth)) and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (‘financial circumstances’) of any particular person. It is not a “personalised service” (as defined in the Financial Advisers Act 2008 (NZ)) and does not constitute a recommendation to purchase, redeem or sell the relevant financial product(s).

Before making an investment decision based on the rating(s) or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances or should seek independent financial advice on its appropriateness. If our advice relates to the acquisition or possible acquisition of particular financial product(s), the reader should obtain and consider the Investment Statement or Product Disclosure Statement for each financial product before making any decision about whether to acquire a financial product. Lonsec’s research process relies upon the participation of the fund manager or product issuer(s). Should the fund manager or product issuer(s) no longer be an active participant in Lonsec’s research process, Lonsec reserves the right to withdraw the document at any time and discontinue future coverage of the financial product(s).

Month in Review as at February 2024

Index returns at February 2024 (%)

Data source: Bloomberg & Financial Express. Returns greater than one year are annualised.

Commentary regarding equity indices below references performance without including the effects of currency (unless specifically stated).

Key Points

• The Australian market had another positive month in February, finishing 0.8% higher. Leading the market higher were Information Technology (I.T.) (+19.5%), Consumer Discretionary (9.2%) and Property (+5.1).
• Overseas markets also finished the month higher, with emerging markets outperforming developed markets. The CSI 300 and Heng Seng rebounded strongly after hitting five-year lows at the beginning of the month.

Australian equities 

In February, the ASX 200 index continued its upward trend for the fourth consecutive month. The index saw a modest increase of 0.8%. Among the eleven sectors, five experienced gains. Notable sectors were Information Technology (I.T.) (+19.5%), Consumer Discretionary (9.2%) and Property (+5.1%), with their returns leading the market. Meanwhile, Energy (-6.0%), Materials (-5.0%) and Health Care (-2.7%) suffered declines, tempering the overall index performance during the month.

Local I.T. stocks had a stellar month, driven by the Artificial Intelligence-led rally in mega-cap U.S. tech names. Altium shares rose 31.5% after a takeover bid was recommended by its board of directors. Consumer Discretionary gained momentum due to surprisingly strong earnings reports from some of its constituents. Despite seemingly weak consumer sentiment, retailers reported stable margins despite price discounts, which buoyed share prices.

Among the laggards, Energy experienced the most significant decline after disappointing earnings reports were posted. Materials continued their slide as iron ore prices reached their lowest level since October 2023, primarily due to weak Chinese steel demand.

Global Equities 

Global equity markets continued to rally in February with no sign of slowing down as strong earnings data pushed markets higher. Emerging markets outperformed developed markets, returning 6.4% (MSCI Emerging Markets Index (AUD) versus a 5.9% return (MSCI World Ex-Australia Index (AUD).

All major indices closed at a record high in the US. A strong reporting season supported growth with 73% of S&P 500 companies beating earnings projections. The Nasdaq Composite gained 6.2% (in local currency terms) in February, while the S&P 500 gained 5.3% (in local currency terms) extending its now four-month winning streak.

Similarly in Japan, the Nikkei 225 Index smashed its 1989 all-time high, gaining 8.0% for the month (in local currency terms), bolstered by strong earnings results, a weaker Japanese Yen and corporate governance reforms aiming to boost shareholder returns.

The CSI 300 and Heng Seng rebounded 9.4% and 6.6% (in local currency terms), respectively after sinking to five-year lows at the beginning of the month. The rebound came after the central bank cut the benchmark lending rate by the most on record and China’s securities regulator tightened controls on “market disruption”.

Property 

The S&P/ASX 200 A-REIT Accumulation index continued its strong start to the year in February, finishing the month 5.1% higher. Conversely, global real estate equities (represented by the FTSE EPR/NAREIT Developed Ex Australia Index (AUD Hedged)) continued to regress, returning -0.1% for the month. Australian infrastructure started the year negatively, with the S&P/ASX Infrastructure Index TR returning -0.7% in February.

In the month of February, M&A activity was relatively muted as companies reported their half-year results. Some notable half-year announcements included Dexus (ASX: DXS) reporting that net tangible assets had decreased by $903m driven by property devaluations of $687m. GPT Group (ASX: GPT) reported revenues and other income were down 65.2% for the year, resulting in a net loss of $240m. Charter Hall Group (ASX: CHC) guided that FY24 distribution per security is set for 6% growth over FY23 distribution.

The Australian residential property market experienced an increase of +0.6% Month on Month (as represented by CoreLogic’s five capital city aggregate). Perth was the biggest riser (+1.8%), followed by Adelaide (+1.1%) and Brisbane (+0.9%). In contrast, Melbourne (+0.1%) was the worst performer during February.

Fixed Income 

The Reserve Bank of Australia has resolved to maintain the cash rate steady at 4.35% following their monthly monetary policy meeting. However, board members stated they would not rule out future interest rate hikes if inflation proves to be more persistent. Minutes from the 5 February meeting also revealed that while the Board acknowledged there had been progress towards inflation objectives, more progress was required, and the outlook remained uncertain.

Over the course of the month, Australian 2-Year and 10-Year Bond yields rose by 11bps and 12bps respectively, while the Bloomberg AusBond Composite 0+ Yr Index was down -0.3% over the course of February. The Statement of Monetary Policy report published by the RBA stated that economic growth in Australia is expected to remain subdued in the near term, and inflation continues to moderate and is expected to return to the target range of 2-3% in 2025.

In the U.S. the Federal Reserve announced that it would again maintain the overnight federal funds rate at 5.25-5.5% for the fourth meeting straight. Markets have priced in another hold in their March meeting. US Treasury notes yields rose, with 2-year and 10-Year Treasury yields rising 42 and 34 bps respectively.

UK GDP contracted 0.3% in the last quarter of 2023, confirming a recession, although by historical standards the recession is likely to be shallow and short-lived. The Bank of England has also decided to hold rates steady at 5.25% and in February the U.K 2-Year and 10-Year Gilt yields rose 36 and 42 bps respectively.

Economic key points 

• Australian inflation fell to 3.4% in January.
• The USA saw higher than expected inflation at 3.1%, further discounting the possibility of interest rate cuts before June.
• The RBA left rates at 4.35% in the first meeting of the year but did not rule out further rate rises in 2024.

Australia 

The RBA left rates at 4.35% in their first meeting of the year, with Governor Michele Bullock commenting that she was yet to be convinced that inflation was on a sustainable downward path, and therefore could not rule out further interest rate rises. The RBA’s base forecast is now for inflation to only return to the midpoint of its 2-3% target range in 2026. Inflation further retreated to 3.4% in January, below the expected 3.6%.

GDP for 2023Q4 came in at 1.5%, slightly ahead of the expected 1.4%. The unemployment rate rose to 4.1% in January suggesting that the economic slowdown is now feeding into the jobs market. Job vacancies fell 5.6% in Q42023 to a total of 387,900 and bringing the annual fall in job vacancies to 13.4%.

The Westpac-Melbourne Institute Index of Consumer Sentiment jumped to 86 amid easing inflation and optimism that the Reserve Bank of Australia has concluded its tightening campaign. Retail sales rose 1.1% in January, matching market estimates, with the annual rate also increasing 1.1%.

Composite PMI rose to 52.1 in February, signifying the first growth in private sector output since September 2023. The NAB business confidence index rose to 1 in January, with manufacturing and construction mainly supporting the improvement while wholesale and retail sentiment fell. The trade surplus increased to $11.03 billion in January, below the market forecast of $11.5 billion.

US 

Higher than expected US inflation led investors to further discount the possibility of interest rate cuts before June. Headline inflation growth was +3.1% for the year to January 2024, compared to expectations of +2.9%, with rising rent costs accounting for most of the increase. While inflation has eased considerably from its +9.1% peak in 2022 it has not slowed since mid-2023, staying around 3%.

The economy added 275,000 jobs in February, well above the anticipated 195,000, however unemployment rose to 3.9%, against an expected 3.7%.

Retail sales dropped 0.8% in January, below the anticipated 0.1% fall, primarily driven by the aftermath of holiday shopping and colder weather. Annual retail sales grew 0.8% for the year to January, well below the +5.8% in December.

Composite PMI increased to 52.5 in February, up from 52 in January. It was the highest reading since June 2023, as manufacturing production saw a boost while service sector activity also rose. Consumer sentiment fell to 76.9 in February, reflecting weaker expectations for income and business conditions, and rising worries over the job market.

The trade deficit widened to US$67.4 billion in January, well above the anticipated US$63.5 billion.

Euro area 

Annual inflation declined to 2.6% in February, slightly above the 2.5% market expectation. PPI fell 0.9%, with the annual rate dropping to 8.5% as energy prices continued to fall.

The unemployment rate came in at 6.4% in January, matching market forecasts. Retail sales rose 0.1% in January, as anticipated. Annual retail sales fell 1.0%, marking the 16th month of contraction. Consumer confidence rose to -15.5 in February thanks to reduced negative views on household finances.

The Composite PMI rose to 49.2 in February, the highest in eight months, with service sector activity showing growth for the first time since July of last year.

UK 

A marginal decline in 4th quarter GDP of 0.3% confirmed that the UK economy slipped into technical recession at the end of 2023. This data is expected to allow the Bank of England to begin cutting interest rates in the second half of this year.

The UK’s inflation rate held steady at +4.0% for the year to January, compared to concerns that it would accelerate to +4.2%. However, it remains double the Bank of England’s target of 2.0%.

Producer input prices fell by 3.3% in the year to January, down from 2.1% in the year to December. Producer output (factory gate) prices fell by 0.6% in the year to January, down from a rise of 0.1% in the year to December.

PMI came in at 53.0 in February, indicating a robust expansion in private sector output, marking the swiftest growth since May 2023. Notably, service sector activity continued to exhibit strong growth, while the contraction in manufacturing output eased to its slowest pace in three months.

Consumer confidence unexpectedly fell to -21 in February, below forecasts for -18, retreating amid weaker readings on personal finances and the broader economic outlook. Retail sales rebounded 3.4% in January, double the market forecast of a 1.5% rise. Annual sales grew 0.7%, surprising the market which expected a 1.4% decline.

China 

The Chinese economy grew by a seasonally adjusted 1.0% in 2023Q4, matching market expectations but moderating from an upwardly revised 1.5% increase in Q3. The government has set a modest 5% growth target for 2014, amid an economic slowdown and dwindling business sentiment. China’s economy grew by 5.2% last year, but this incorporated a substantial rebound from the COVID-zero policies of 2022, and many investors expect further policy support will be needed to maintain that growth rate, and for currently negative CPI inflation to recover towards the government’s +3% target.

The unemployment rate increased to 5.2% in January, higher than the 5.1% in December, but below the 5.5% government target.

China’s consumer prices rose by 0.7% year on year in February, the highest level in 11 months due to robust spending during the Lunar New Year holiday.

PPI was unchanged at -0.2% in February, bringing the annual rate to -2.7%, above the expected -2.5%. This is the 17th straight month of contraction in factory gate prices, underscoring that the economy continued to grapple with numerous headwinds as various support measures from Beijing to speed up recovery since last year apparently had little effect.

Composite PMI was unchanged at 50.9 in February, with services expansion offset by the continued contraction in manufacturing. It is worth noting that PMI readings in February are less reliable due to the distortion from the Lunar New Year break, making it difficult to get a clear picture of economic momentum, particularly for the manufacturing sector.

Annual retail sales grew 7.4% in December, below the expected 8% and under the previous month’s 10.1% growth, amid a slowing demand for communications equipment and cars.

A trade surplus of US$125.16 billion was recorded in January-February, well above the expected US$103.7 billion surplus.

Japan 

GDP rose 0.1% in the December quarter, compared with flash data of a 0.1% fall and a 0.8% contraction in Q3, and narrowly escaping a recession. The annual inflation rate dropped to 2.2% in January as food price roses continue to moderate. The unemployment rate remained at 2.4% in January, matching the market forecast.

The consumer confidence index rose to 39.1 in February, the highest reading since December 2021 and above the forecast 38.3. Retail sales rose 0.8% in January, with the annual rate rising 2.3%, matching market forecasts. Composite PMI came in at 50.6 in February, down from 51.5 in January, but still in expansion territory amid a sustained increase in the service sector.

Currencies 

The Australian dollar (AUD) depreciated over the month of February, closing 0.5% lower in trade weighted terms to 61.1, appreciating against the Japanese Yen (JPY) whilst depreciating against the US Dollar (USD), Pound Sterling (GBP) and Euro (EUR).

The AUD fell against the USD early in the month following a much stronger-than-expected US employment report, which saw traders unwind some of the pricing for US rate cuts this year. Furthermore, the higher than anticipated US CPI pushed the USD higher, sending the AUD/USD to a three-month low during the month. The AUD was also weaker against the majority of the remaining G10 currency basket.

Relative to the AUD, the USD led the pack in February, appreciating by 1.5%. Conversely, the JPY was the laggard of the month, depreciating in relative terms by 0.9% against the AUD. Year-on-year, the AUD remains behind the GBP, EUR, and USD by -7.8%, -5.6% and – 3.8% respectively, whilst ahead of the JPY by 6.2%.

Important notice: This document is published by Lonsec Research Pty Ltd ABN 11 151 658 561, AFSL No.421445 (Lonsec). Please read the following before making any investment decision about any financial product mentioned in this document.

Disclosure at the date of publication: Lonsec receives a fee from the fund manager or product issuer(s) for researching the financial product(s) set out in this document, using comprehensive and objective criteria. Lonsec may also receive a fee from the fund manager or product issuer(s) for subscribing to research content and other Lonsec services. Lonsec’s fee is not linked to the rating(s) outcome.

Lonsec does not hold the product(s) referred to in this document. Lonsec’s representatives and/or their associates may hold the product(s) referred to in this document, but details of these holdings are not known to the Analyst(s).

Disclosure of Investment Consulting services: Lonsec receives fees for providing investment consulting advice to clients, which includes model portfolios, approved product lists and other financial advice and may receive fees from this fund manager or product issuer for providing investment consulting services. The investment consulting services are carried out under separate arrangements and processes to the research process adopted for the review of this financial product.

For an explanation of the process by which Lonsec manages conflicts of interest please refer to the Conflicts of Interest Policy which is found at: http://www.lonsec.com.au/aspx/IndexedDocs/general/LonsecR esearchConflictsofInterestPolicy.pdf

Warnings: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is a “class service” (as defined in the Financial Advisers Act 2008 (NZ)) or limited to “General Advice” (as defined in the Corporations Act 2001(Cth)) and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (‘financial circumstances’) of any particular person. It is not a “personalised service” (as defined in the Financial Advisers Act 2008 (NZ)) and does not constitute a recommendation to purchase, redeem or sell the relevant financial product(s).

Before making an investment decision based on the rating(s) or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances or should seek independent financial advice on its appropriateness. If our advice relates to the acquisition or possible acquisition of particular financial product(s), the reader should obtain and consider the Investment Statement or Product Disclosure Statement for each financial product before making any decision about whether to acquire a financial product. Lonsec’s research process relies upon the participation of the fund manager or product issuer(s). Should the fund manager or product issuer(s) no longer be an active participant in Lonsec’s research process, Lonsec reserves the right to withdraw the document at any time and discontinue future coverage of the financial product(s).