President Trump’s announcement of tariffs on imported steel and aluminium at the beginning of the month escalated into retaliatory measures by China and a subsequent expansion by the United States to include 1,300 industrial technology, transport and medical products by month-end. Because trade is one of the key engines of the global economy, the widespread introduction of tariffs will have a very negative impact on global economic growth.

Meanwhile, the poisoning of a former spy on British soil soured relations between Russia and the West, with a number of countries expelling Russian diplomats.

In better news, tensions eased somewhat on the Korean Peninsula with both Kim Jong-un and Donald Trump indicating openness to discussions around denuclearisation. There was also some progress on Brexit over the month, with a deal being reached establishing a transition period and a backstop option to avoid a hard border between Northern Ireland and the Republic of Ireland.

Japanese Prime Minister Shinzo Abe’s standing among voters continued to fall as the cronyism scandal intensified, with the finance ministry admitting to tampering records to remove references to the Prime Minister and his wife.

China’s legislature voted to abolish Presidential term limits, meaning that President Xi Jinping can now continue to rule beyond the end of his second term in 2023.

Equities

The major markets all traded down in local currency terms over the month, as trade tensions between the US and China escalated. Whilst the measures announced so far are not overly large in the context of the size of bilateral trade between the two countries, markets sold off on the possibility of further escalation, particularly as the contentious issue of intellectual property rights protection remains unsolved.

Concerns about privacy and political influence at several major technology companies drove the US share markets lower.

The Australian share market generally underperformed global peers in a reversal of last month’s performance.

Emerging markets outperformed the major developed markets over the month.

From a developed markets sectoral perspective, only the energy and utilities sectors added value while IT, Materials and Financials were the worst performers.

In Australia the best performing sector was listed property, which managed to hold ground over the month, while Financials, Materials and Telecommunications underperformed.

Bonds

The US Federal Reserve raised interest rates in Jerome Powell’s first meeting as Chair, a move widely expected by the market. Despite the continued tightening of Central Bank policy in the US, bond yields fell over the month as investors became more cautious (falling bond yields are positive for bond returns).

Australian 10-year Government bond yields fell slightly more than global peers over the month and remain below US 10-year Government bond yields in a continued reversal of the relationship that has prevailed since the start of the century.

Japanese 10-year Government bond yields were unchanged over the month despite the scandal evolving around Prime Minister Shinzo Abe, as the program of active yield curve control keeps yields well anchored at current levels.

In other Central Bank news, China named Guo Shuqing as Party Secretary of the People’s Bank of China as well as elevating deputy governor Yi Gang to the top job, further strengthening the bank’s role in setting monetary policy with two avid financial reformers at the helm.

Currencies

The Australian Dollar weakened against major global currencies over the month, driven by the global risk off sentiment that prevailed in the wake of escalating geopolitical tensions and weakness in iron ore prices. The Aussie fared best against the US Dollar, albeit still finishing down over the month at 76.8 US cents.

The Yen was well supported against the Australian Dollar and those of other higher-yielding markets given its perception as a ‘safe haven’ currency, assisted by speculation that the troubles engulfing Shinzo Abe’s administration may lead to an earlier than expected moderation of its stimulus policies.

Interestingly though, the Euro and Pound were the strongest performers of the group, as the successful establishment of a coalition government in Germany and some headway on Brexit issues supported the currencies.

Commodities

Oil markets were well supported in March after an agreement was reached by OPEC to cut supply faster than previously planned. Natural gas prices also performed well over the month.

Metal indices fared much worse with iron ore prices in particular falling significantly, on the back of falling Chinese steel prices and production cuts. This negatively impacted the Australian Dollar and Australian materials companies.

Performance of key markets 

Asset class	Index	Month (% change)	FYTD (% change)	1 year (% change)
Australian Shares	S&P/ASX 200 Acc. Index	-3.8	4.2	2.5
International Shares	MSCI World Ex Aust Unhedged A$ Net Return	-0.5	9.3	13.3
International Shares	MSCI World Ex Aust Hedged A$ Net Return	-2.3	7.6	11.0
US Shares	S&P 500 Index	-2.5	10.6	14.0
UK Shares	FTSE 100 Index	-2.0	-0.8	0.2
Japan Shares	Nikkei 225 Index	-2.0	9.0	15.7
Australian Property	S&P/ASX 200 A-REIT Index	0.1	2.7	-0.8
Australian Fixed Interest	Bloomberg AusBond Composite Index	0.8	2.3	3.3
Australian Cash	Bloomberg AusBond Bank Bill Index	0.1	1.3	1.7
Currency	AUD/USD	-1.1	-0.1	0.7

Returns are for periods to 31 March 2018. Past performance is not an indication of future performance.

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