The value of the Australian Dollar increased against most major foreign currencies, decreasing overseas investment returns when measured in Australian dollar terms. International fixed interest markets posted positive returns as yields generally decreased.

Global markets continued their recent volatility in November with the key drivers being inflation and subsequent Central Bank responses. The United States Consumer Price Index (CPI) print for October was 7.7% year-on-year (published on 10 November). This was the fourth consecutive month of declines in the rate of CPI, and the print came in 0.3% below expectations, sparking a rally in equity and bond markets. Notably the October CPI figured decreased from September as price increases in energy and food moderated, although this was offset somewhat by rising shelter costs. The inflation rate is still well above the Federal Reserve’s (Fed) target range of 2%-3% and as such Chairman of the Fed, Jerome Powell, continued with aggressive hiking in November, raising the cash target rate by 0.75% to bring the upper end of the cash rate target to 4%. 

In the United Kingdom (and to a large extent the Euro Area) the picture is different however, as inflation continues to climb, reaching 11.1% year-on-year in October. On 3 November, the Governor of the Bank of England, Andrew Bailey, announced a 0.75% increase to the cash rate, bringing the cash rate target to 3%. 

Looking domestically, the Reserve Bank of Australia met on 1 November and increased its cash target rate by 0.25% to 2.85%, being one of the first Central Banks to moderate their rate of increase. The minutes of the RBA meeting noted “that inflation in Australia remained too high, as was the case in most countries. Global factors were a key part of the explanation, but strong domestic demand relative to the ability of the economy to meet that demand was contributing to high inflation” whilst stressing “price stability is a prerequisite for a strong economy and a sustained period of full employment. The Board’s priority is therefore to return inflation to the 2 to 3 per cent target range over time, while keeping the economy on an even keel.” Members of the RBA also published a review of their forward guidance policy, which came under scrutiny from the media. The RBA noted “the Bank had attracted extensive criticism when the cash rate was increased much earlier than the time-based element of the Board’s conditional guidance had suggested”. Future forward guidance policy will be adjusted so that “where forward guidance is appropriate, ordinarily it will be qualitative in nature. Given the inherent uncertainty in the world, forward guidance will generally be flexible and conditionality will likely focus on the Board’s policy objectives – namely, inflation and unemployment – rather than the drivers of these variables (e.g. wages). It will typically focus on the short term and be narrative in nature”. 

On 30 November, the Australian Bureau of Statistics published their first “CPI Indicator”, which had a reading of 6.9% year-on-year for the month of October. The “CPI Indicator” is not an official CPI reading, which is published only quarterly, however the value was 0.4% down from the official September reading of 7.3%.

Protests erupted throughout China in late November in response to the strict zero-COVID-19 policy being enforced by the federal government. A catalyst for the protests was a fire in an apartment building in Xinjiang that firefighters were delayed attending due to the strict lockdown measures in place. Since then, protests have sprung up in at least 15 cities including Beijing and Shanghai, with some calling for the Chinese Communist Party and President Xi Jinping to step down. Whilst some protests dispersed peacefully others were met with force by the police. 

On 15 November a  missile landed in Poland roughly 6km from the Ukrainian boarder, killing 2 Polish civilians. Poland is a NATO country, and it was the first time a NATO country had been directly hit in the nine-month conflict. Following the incident, the Head of Polish International Policy Bureau concluded that it was a Ukrainian air defense missile that failed to intercept a Russian offensive missile and the self-destruct system failed. The incident had the potential to spark a major retaliation from NATO members but ultimately the status quo of the war remained unchanged.

The United States held their mid-term elections on 8 November, where all seats in the House of Representatives and approximately one-third of the seats in the Senate were contested. Whilst a “red-wave” of Republican support was anticipated by many political pundits, particularly given the state of the economy with soaring inflation, the term “red-trickle” was adopted by some when the results came in. The Democrats retained the Senate with the slimmest of majorities (with one remaining seat still to be decided). The Republicans did take control of the House although with a much smaller majority of around seven seats (with two seats to be decided). The divided Congress will make it difficult for President Joe Biden to pass any major legislation over the next two years.

Equities

Major developed foreign equity markets produced strong positive returns in the month of November. Developed markets (excluding Australia) returned 5.4% on a currency-hedged basis (and 2.0% in Australian dollar terms, reflecting the substantial rise in the value of the Australian dollar). The best performing of the major foreign markets was the European stock market (Euro Stoxx 50 Index) returning 9.7%. 

The Australian stock market (S&P/ASX 200 Index) generated a return of 6.6% during November, with all 11 sectors experiencing positive returns. Utilities and Materials were the standout performing sectors, returning 20.8% and 16.2% respectively. Finance was the worst performing sector but still returned 1.1%.

From a foreign developed market perspective, similarly, all sectors also produced positive returns. Materials, Financials and Industrials were the best performers returning 11.6%, 7.3% and 7.0% respectively. Energy was the worst performing sector but still managed to return 2.1%.

Bonds

The Australian government bond yield curve shifted downwards in November, resulting in positive Australian fixed interest returns for the month of 1.5% (Bloomberg AusBond Composite Index). The slope of the Australian government bond yield curve flattened in November as the two-year yield decreased by 0.12% and the ten-year yield decreased by 0.23%. As noted above, the cash rate set by the RBA increased by 0.25%, from 2.60% to 2.85% on 1 November.

Over the month of November, major developed global government bond yields broadly decreased resulting in positive returns, with the Bloomberg Barclays Global Aggregate Index returning 4.7%. Notably, the United States Government yields declined 0.44% over ten-year maturities, the most of the major developed government bond markets. Over the two-year term, European government yields rose the most, by 0.19%, as inflation continues to climb in that region.

Currencies

The Australian Dollar rose against most major foreign currencies in November, but by far the most strongly against the United States Dollar. The Australian Dollar increased 6.1% against the United States Dollar and 0.7% against the Euro, but decreased 1.5% against the Japanese Yen. The Australian Dollar finished the month at 0.6788 US Dollars, up 3.9 US cents over the month.

Commodities

Commodity prices were volatile over the month of November. The S&P GSCI Commodities index decreased by 2.4% for the month of November, with the price of iron ore futures notably rising 15.5%. The price of WTI oil and Brent oil decreased over the month, finishing down 6.9% and 9.9% respectively, as markets adjusted to the likely Russian oil price cap. Of the precious metals, the price of gold increased 8.3% and the price of silver increased by 15.8% in November. 

Performance of key markets over relevant time periods to 30 November 2022:

Asset class	Index	Month* (% change)	FYTD* (% change)	1 year* (% change)
Australian Shares	S&P/ASX 200 Acc. Index	6.6%	13.5%	5.0%
International Shares	MSCI World Ex Aust Unhedged A$	2.0%	10.4%	-5.9%
International Shares	MSCI World Ex Aust Hedged A$	5.4%	7.2%	-10.1%
US Shares	S&P 500 Index	5.6%	8.6%	-9.2%
UK Shares	FTSE 100 Index	7.1%	7.3%	11.3%
Japanese Shares	Nikkei 225 Index	1.4%	7.0%	2.7%
Australian Listed Property	S&P/ASX 200 A-REIT Index	5.8%	8.4%	-13.0%
Australian Fixed Interest	Bloomberg AusBond Composite Index	1.5%	1.8%	-7.7%
Australian Cash	Bloomberg AusBond Bank Bill Index	0.2%	0.9%	1.0%
Currency	AUD/USD	6.1%	-1.7%	-4.8%

*Percentage changes in returns are for periods over the month of November (Month), financial year to date 30 June 2022 to 30 November 2022 and the prior 12 months 30 November 2021 to 30 November 2022 (Prior 12m). Past performance is not an indication of future performance.

Any general advice on this website has been prepared without taking into account your objectives, financial situation or needs. Before you act on any general advice on this website, you should consider whether it is appropriate to your individual circumstances. Before making any investment decision, you should obtain and read the relevant product disclosure statement which is available on the Website or by calling 1300 033 166 between 8.30 am and 5.30 pm (AEST) Monday to Friday. You may wish to consult an Adviser before you make any decisions relating to your financial affairs. To speak with an Adviser from TelstraSuper Financial Planning call 1300 033 166.