November was a volatile month for global markets, with investor risk appetite shifting substantially throughout the month. This resulted in marked differences in returns by asset class and region. The broad measure of global equities was up over the period, despite negative returns from Australia, Europe and the UK. The Australian Dollar and credit spreads both rose over the month.

News on the trade front started poorly, before recovering and spurring an uptick in investor sentiment. China’s President Xi Jinping began the month by stressing his anti-protectionism stance at the International Import Expo, before trading sharply worded speeches with US Vice-President Mike Pence at the APEC summit. Around the same time it looked like the revised North American trade deal with Mexico and Canada was likely to be delayed due to US domestic politics. Relief came to global investors in the final few days of November, when a tentative agreement was reached between Presidents Donald Trump and Xi Jinping to a temporary tariff cease-fire, and the United States-Mexico-Canada Agreement was signed by the three countries.

November was also an interesting month for domestic politics in the US, as the mid-term elections saw Democrats win control of the lower house and Republicans retain control of the Senate. Rumours continue to swirl around the Russian collusion probe spearheaded by Robert Mueller, as Michael Cohen, President Trump’s former attorney, pleaded guilty to lying to Congress about the Trump Tower meeting with Russian officials and agreed to assist the investigation.

The uncertainty surrounding the United Kingdom’s exit from the European Union (nicknamed “Brexit”) continues. Theresa May successfully navigated the draft deal through her cabinet, but not without difficulty - including potential leadership challenges, the resignations of government ministers and challenges from business interests. European leaders agreed to the draft divorce terms during the month, leaving May with the difficult task of getting Parliamentary approval. With no plan B in place if the deal is rejected the stakes are high, and Bank of England Governor Mark Carney warned that the UK could enter its steepest economic slump since World War II if May’s plan is not approved.

The newly-established populist Italian government remained a headache for European leaders in November, as both sides disagreed on an appropriate budget deficit level. After much posturing, the Italian government appeared to back-down at the end of the month and began forming scenarios for a lower budget deficit, conceding it could not fund both tax cuts and additional benefits without backlash from the EU and the bond market.

Equities

Equity market performance was mixed in November, with US and Japanese equities rising whilst Australian, European and UK markets fell. Emerging markets outperformed developed markets, returning roughly 3% in local currency terms.

The Australian market underperformed most global peers over the month with the Energy sector the biggest loser, down over 10%. Materials and Consumer Discretionary were the next worst performing sectors, whilst Financials and IT were the only sectors to deliver positive returns.

From a developed market sectoral perspective Healthcare, Communications and Utilities were the best performing sectors, whilst the largest detractors were Energy, IT and Materials.

Bonds

All eyes were on the US Federal Reserve over the month, as a number of statements were interpreted as implying a slower pace of rate hikes which helped to ease the upward pressure on bond yields. In particular, the bond market responded positively to Federal Reserve Chairman Jerome Powell’s statements that interest rates were now “just below” the neutral range.

Two and ten-year government bond yields in the US fell over the month as a result of these developments, with the ten-year falling further than the two-year (also known as a flattening of the yield curve). Ten year yields in Australia and the other major developed markets also fell over the month, although movements in two-year yields were more mixed with increases in Australia, the UK and Europe. Falling bond yields are positive for bond prices.

Currencies

After a fairly negative October for the Australian Dollar, November saw some recovery as a modicum of risk appetite returned to global markets.

The AUD rose against most major currency pairs and on a trade-weighted basis over the month, with the largest gains against the Canadian and Japanese currencies.

The Australian Dollar finished the month at 0.7306 US Dollars, rising over 2.3 cents during November.

Commodities

The major story in global commodity markets over the month was the collapse in the oil price, with WTI and Brent Crude both down over 20% in November. A number of events contributed, including the US providing waivers to a number of key countries from its sanctions on purchasing Iranian oil and President Donald Trump’s decision not to impose penalties on Saudi Arabia, an extremely important country for global oil supply, following the murder of journalist Jamal Khashoggi at a Saudi Arabian consulate in Istanbul.

Industrial metals performance was mixed over the month, with copper the strongest performer and iron ore the weakest following a particularly strong October. Precious metals ended largely flat over the month, but experienced a fair amount of volatility as risk appetite waxed and waned throughout November.

Performance of key markets 

Asset class	Index	Month (% change)	FYTD (% change)	1 year (% change)
Australian Shares	S&P/ASX 200 Acc. Index	-2.2	-6.7	-1.0
International Shares	MSCI World Ex Aust Unhedged A$ Net Return	-1.8	-0.3	4.2
International Shares	MSCI World Ex Aust Hedged A$ Net Return	1.2	-0.5	1.9
US Shares	S&P 500 Index	2.0	2.4	6.3
UK Shares	FTSE 100 Index	-1.6	-7.0	-0.7
Japan Shares	Nikkei 225 Index	2.0	1.0	0.3
Australian Property	S&P/ASX 200 A-REIT Index	-0.4	-1.7	1.4
Australian Fixed Interest	Bloomberg AusBond Composite Index	0.2	1.3	2.5
Australian Cash	Bloomberg AusBond Bank Bill Index	0.2	0.8	1.9
Currency	AUD/USD	3.3	-1.3	-3.4

Returns are for periods to 30 November 2018. Past performance is not an indication of future performance.

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