Global equity markets posted strong positive returns in December 2019 to finish off the year on the back of strong risk-on sentiment leading into the holidays. All major foreign stock exchanges increased over the month by at least 1.0%. The Australian share market was an exception and declined by 2.2% over the month. Emerging markets collectively and the United States stock markets registered the largest gains of 5.7% and 3.0% respectively. The value of the Australian Dollar increased against all major currencies, which meant that global returns were generally negative when measured in Australian dollar terms. Global investment grade credit spreads broadly contracted over the month (i.e. the market’s perceived riskiness of lending to high quality companies decreased).

There were two major global political events during December, the United Kingdom’s general election and the impeachment of the US president.

Citizens of the United Kingdom went to the polls on the 12th of December to vote in their general election. The result was a landslide majority for the Conservative Party and provided Prime Minister Boris Johnson with the largest majority since the Thatcher Government of 1987. Mr. Johnson’s majority is sufficient to pass his Brexit deal even with dissenters on his side. The Scottish National Party (SNP) was the other major beneficiary of Labour/Jeremy Corbyn’s defeat. The election results prompted talks of another Scottish independence referendum, which has been spurred on since the Brexit vote where 62% of Scotts voted to remain in the European Union.

President Donald Trump officially became the third American president to be impeached (not counting Nixon, who technically resigned before officially being impeached) on the 19th of December 2019. The next stage of the process is a Senate trial to be run by Republican leader of the Senate, Mitch McConnell. It is expected that the Senate trial will not vote to remove President Trump from office. Recent reports suggest the Senate trial will be short and will begin early 2020. The United States stock market (S&P 500) was largely unaffected by the impeachment and continued to climb higher.

In a positive development for global trade, both the United States and China agreed to a phase one trade deal on the 13th of December. The agreement won’t be formally signed until mid-January 2020 with current tariffs remaining in place until the agreement is reached. China has agreed to purchase more agricultural products and made further commitments on currency manipulation and intellectual property rights, and in exchange the US will reduce or suspend future planned tariffs on vehicles and other targeted products.

The Federal Reserve, the Reserve Bank of Australia, the European Central Bank (ECB) and the Bank of Japan all noted downside risks but opted to leave rates unchanged in December.

Equities

All major foreign equity markets posted positive returns in December of at least 1.0%. Developed markets returned 2.3% in local currency terms (and -0.9% in Australian dollar terms), whereas emerging markets outperformed relative to developed markets, returning 5.7% in local currency terms. 

The Australian stock market generated a negative 2.2% return during December, with 10 of the 11 sectors contributing negatively. Materials was the only Australian stock sector to produce a positive return, of 1.5%, whilst Utilities remained relatively neutral. The worst performing sectors were Consumer Staples, Real Estate and Communication Services.

From a developed market sectoral perspective, all sectors generated positive returns. Energy and Information Technology were the best performing sectors with returns of 4.2% and 3.9% respectively. Industrials and Consumer Staples were the worst performing sectors over the month.

Bonds

The Australian government bond yield curve steepened marginally over December as two-year and ten-year yields increased by 0.24% and 0.34% respectively. Increasing bond yields are negative for short term bond investment returns.

Chinese government bonds were the only major overseas market to experience falling yields over the ten-year term. Over the two-year term United States and Chinese government bonds yields decreased whilst yields in Japan and Europe rose modestly.

Currencies

The Australian dollar strengthened against all major currencies by at least 1.0% over the month, due to rising Australian yields and the prevailing risk-on environment, except for the Swiss Franc which remained broadly neutral. The AUD increased by 3.8%, 3.0% and 2.8% against the United States Dollar, Japanese Yen and Chinese Renminbi respectively.

The Australian Dollar finished the month at 0.7021 US Dollars.

Commodities

The price of WTI crude oil increased 10.7% during December whilst Brent crude oil increased by approximately half as much rising 5.7%. Industrial metal prices increased 3.1% on average, with copper the best performer and aluminium the only metal that fell in price in US Dollar terms. In precious metals, both gold and silver saw positive returns of 3.4% and 4.8% respectively for the month. Notably natural gas declined 4.0% during December.

Performance of key markets:

Asset class	Index	Month (% change)	FYTD (% change)	1 year (% change)
Australian Shares	S&P/ASX 200 Acc. Index	-2.2	3.1	23.4
International Shares	MSCI World Ex Aust Unhedged A$	-0.9	9.1	28.0
International Shares	MSCI World Ex Aust Hedged A$	2.3	8.9	26.8
US Shares	S&P 500 Index	3.0	10.9	31.5
UK Shares	FTSE 100 Index	2.8	3.7	17.3
Japanese Shares	Nikkei 225 Index	1.7	12.3	20.7
Australian Listed Property	S&P/ASX 200 A-REIT Index	-4.4	-0.1	19.4
Australian Fixed Interest	Bloomberg AusBond Composite Index	-1.6	0.6	7.3
Australian Cash	Bloomberg AusBond Bank Bill Index	0.1	0.5	1.5
Currency	AUD/USD	3.8	0.0	-0.4

Returns are for periods to 31  December 2019. Past performance is not an indication of future performance.