News

Major economy central banks were centre stage in March. The RBA left rates on hold, as did the BOJ & US Fed. The ECB shot the “big bazooka” which meant a rate cut further into the negative of -0.4%, an increase in money printing from €60b to €80b per month, and an extension of money printing to include investment grade European Corporate debt. With the US on hold and their acknowledgement of fewer interest rate rises this year, markets gained confidence. Commodities and stocks rallied, with the US markets outperforming the rest, up nearly 7% in the month. The USD weakened against most currencies on the dovish Fed, which saw the Australian dollar spike around 7% to 76c. The stronger Australian dollar meant international unhedged assets underperformed. Australian yields rose during the month causing bonds to underperform.

The American Dream Trumped Watching the nuances of the Presidential debate from Australia can seem quite comical at times.

Risk assets experienced another volatile month, with most stock markets capitulating a further 2%. Early in the month Australian stocks fell a further 5%, but managed a modest recovery to end the month just down 1.8%. Japan’s Nikkei was the worst performer, falling 8.5% despite the Bank of Japan’s stimulatory efforts of negative interest rate policy. Bonds outperformed as investors continued to reduce risk and invest in safe haven assets. European 10 years fell to 0.10% as data showed the big 4 European economies with negative inflation. With mixed economic data, market participants were concerned the US Federal Reserve was still on a one way track to increase interest rates (4 times) this year. Fed Chair Janet Yellen eased fears by saying they were not on a “pre-set course”, and noted that financial conditions had tightened. The oil price was still dominated by excess supply. The price managed to find a base and close higher by the end of February as Saudi, Russian, & Iranian oil ministers met and agreed not to increase current production. A number of ASX 200 stocks reported in February. Stocks were forced to contend with macro themes such as the banks being shorted. Broadly speaking, around 70% of companies reported top line numbers which were better than forecast, making their overall results “better than feared”. A number of energy and material sector stocks either cut dividends, or flagged large impairments. This included the blue chips BHP & RIO. Toward the end of the month, the G20 leaders met in Shanghai, and were urged by the IMF to develop a global stimulus plan. They failed to agree, with participants reverting to individual fiscal and monetary policy settings.

Last week, the Australian stock market managed to bounce back from February 10 lows and make a 286pt gain. That’s a very welcome 6% increase. But it got me thinking about the extreme volatility we’ve been experiencing in the markets and what’s helped create this pause in the selling madness.