The value of the Australian Dollar decreased against major currencies, somewhat enhancing the returns of overseas investments when measured in Australian dollar terms. Global investment grade credit spreads widened over the month (i.e. the market’s perceived risk of lending to high quality companies increased).

In September, the Reserve Bank of Australia (RBA) kept the cash rate unchanged at 0.25% and reaffirmed its commitment to keeping the yield on three-year government bonds at 0.25%. All major Central Banks kept rates unchanged in September, with the US Federal Reserve and the European Central Bank stating rates are unlikely to rise until inflation increases to around 2%.

With just over one month to go (at the time of writing) before the United States presidential election, polls stabilised somewhat over September with Biden holding a 6-percentage point lead on average [1]. The United States underwent further political polarisation in September with the passing of Supreme Court Justice Ruth Bader Ginsburg. The President of the United States together with the Senate have the power to nominate and confirm a candidate to fill the vacant seat. President Trump has nominated Judge Amy Coney Barrett to the Supreme Court and asked the Senate to consider the nomination “without delay”, aiming to have the position confirmed before the upcoming election. The election and Supreme Court appointment appear to be the Senate’s focus ahead of negotiations with the Democrats on a further stimulus package (with the resulting lack of progress on negotiations weighing on markets).

Brexit negotiations took a backwards step in September when the Prime Minister of the United Kingdom (UK), Boris Johnson, proposed legislation that would seemingly breach international law. The Internal Market Bill, proposed by Johnson, alters the trading arrangement within the UK by abolishing custom declarations for goods entering Northern Ireland from the EU, effectively counteracting the agreed Withdrawal Agreement with the European Union (EU). The Internal Market Bill comfortably passed the House of Commons despite 30 Tory abstentions on the 30th of September [2]. 

In addition, the 75th annual United Nations General Assembly was conducted via videoconference for the first time in history in September. Key items discussed were the pandemic, climate change and multilateralism.

COVID-19

Reported global coronavirus case numbers exceeded 33.5 million at the end of September, with a total of over 1,000,000 fatalities. Daily reported cases of infections surpassed 300,000 on a global basis in September and remain elevated relative to historically reported cases. Argentina, Spain, France and the United Kingdom all saw reported cases of infection peak in September. Western Europe, more broadly, has experienced a second wave that has been building since July and continued to trend upwards in September. 

Vaccine progress stalled for AstraZeneca, the Oxford vaccine, in mid-September over a potentially unexplained illness in one trial participant. It’s not uncommon for vaccine trials to experience potentially adverse outcomes and delays. After a couple of days’ pause to investigate the specific issue, the Oxford vaccine Phase 3 trials resumed, concluding that the adverse outcome was not related to the vaccine. Treatments for COVID-19 continued to push forward in September, with a number of drugs being approved by authorities. This is expected to reduce the severity of the disease and relieve pressure on ICU departments.

Australia made significant progress towards stemming the second wave of COVID-19 infections in September. Victoria, more specifically metropolitan Melbourne, continues to be the hotspot for Australia but stage 4 restrictions appear to have had the desired effect of reducing infections.

Equities

Foreign equity markets decreased substantially throughout September. Developed markets (excluding Australia) returned -2.9% on a currency-hedged basis (and -0.3% in Australian dollar terms), underperforming emerging markets which returned -1.6% in local currency terms. The best international performer was the Japanese Nikkei 225 Index which returned +0.8% for the month.

The Australian stock market (ASX 200) generated a return of -3.7% during September, with 10 out of 11 sectors contributing negative returns. Health Care was the sole sector to contribute a positive return of 0.4%, while Industrials was the next best performer returning -0.7%. Energy, Consumer Staples and Information Technology decreased the most, by 11.6%, 7.2% and 6.9% respectively.

From a developed market sectoral perspective, 3 out of 11 sectors produced positive returns and 8 contributed negative returns. Materials was the top performing sector returning 0.6%, Utilities and Industrials followed returning 0.2% and 0.1% respectively.  The Energy sector was the standout underperformer decreasing by 12.7%.

Bonds

The Australian government bond yield curve flattened over September with the two-year yield decreasing by 0.097% and the ten-year yield decreased by 0.195%. The cash rate set by the RBA remained unchanged.

All major developed global government bond yields decreased over ten-year terms. Across two-year terms, global government bond yields remained relatively stable. 

Currencies

The Australian dollar weakened against all major currencies over the month due to a lower appetite for risk (risk-off sentiment),  except for the British Pound where the Australian Dollar increased 0.5% on Brexit concerns. The AUD decreased by 3.7%, 3.3% and 2.9% against the Chinese Renminbi, Japanese Yen, and United States Dollar respectively.

The Australian Dollar finished the month at 0.7162 US Dollars, down 2.1 US cents over the month.

Commodities

The price of crude oil closed at around $40 a barrel for WTI and Brent. WTI fell 5.6% and the price of Brent crude oil decreased 9.6% over the month due to continued subdued global output. The S&P GSCI Industrial Metals index decreased 2.0% on average, with iron ore being the top performer which rose 2.7%. Regarding precious metals, the price of gold and silver reduced by 4.2% and 17.4% respectively for the month of September.

Asset class	Index	Month (% change)	FYTD (% change)	1 year (% change)
Australian Shares	S&P/ASX 200 Acc. Index	-3.7%	-0.4%	-10.2%
International Shares	MSCI World Ex Aust Unhedged A$	-0.3%	3.8%	4.3%
International Shares	MSCI World Ex Aust Hedged A$	-2.9%	6.4%	6.4%
US Shares	S&P 500 Index	-3.8%	8.9%	15.1%
UK Shares	FTSE 100 Index	-1.5%	-4.0%	-18.1%
Japanese Shares	Nikkei 225 Index	0.8%	4.7%	8.7%
Australian Listed Property	S&P/ASX 200 A-REIT Index	-1.5%	7.0%	-16.6%
Australian Fixed Interest	Bloomberg AusBond Composite Index	1.1%	1.0%	3.2%
Australian Cash	Bloomberg AusBond Bank Bill Index	0.0%	0.0%	0.6%
Currency	AUD/USD	-2.9%	3.8%	6.1%

*Percentage change in returns are for periods over the month of September (Month) or for the financial year I July to 30 September 2020 (FYTD) or for the year 30 September 2019 to 30 September 2020 (1 year). Past performance is not an indication of future performance.

[1] https://www.realclearpolitics.com/epolls/2020/president/us/general_election_trump_vs_biden-6247.html

[2] https://votes.parliament.uk/Votes/Commons/Division/860#ayes