A key component of financial market news in September was the continued struggle of Emerging Market economies in an environment of US Dollar strength and concerns about the outlook for global trade. Argentina cut expenses and imposed an export tax in an effort to signal a strong push to balance its budget in 2019, whilst South Africa entered a recession and the Indonesian Rupiah joined the Argentinian Peso and Turkish Lira in falling towards record lows.

The Trump Administration imposed further tariffs on Chinese imports with a 10% duty levied on approximately $200bn worth of goods. China retaliated with tariffs on the US shortly after. Tensions continued to build as Trump’s tweets warned about “great and fast retaliation” for China if they continue to retaliate whilst claiming that OPEC is “ripping off” other countries by engineering oil price strength.

FAANG stocks (Facebook, Amazon, Apple, Netflix and Google) attracted attention during the month as Amazon became the second ever company to reach a market cap of $1 trillion USD. Apple (having previously reached the $1tn mark) suffered somewhat with tariffs being imposed on several of its latest products.

Equities

Equity markets were mixed over the month, with Japan’s Nikkei 225 Index the stand-out performer producing a total return of over 6% in local currency terms. The US, UK and European equity markets were modestly positive over the month, whilst Australian and emerging market equities fell.

The best developed market performers were Energy, Telecommunications and Health Care, whilst Financials and IT were detractors.

The majority of sectors in the Australian share market experienced falls over the month, with Energy, Materials and Telecommunications the notable exceptions. Healthcare and Consumer Discretionary were the worst performing sectors.

Bonds

The US Federal Reserve showed no indication of deviating from its plan of gradual interest rate rises, with Chair Jerome Powell confirming further hikes will likely continue well into 2019 supported by a strong economy with mild inflation and low unemployment.

Short term (2 year) yields rose in the major economies amidst continued tightening of monetary policy in the US. Longer duration (10 year) yields typically increased more than the short duration bonds, reversing the recent trend of yield curve flattening. These rises meant that the major Australian and global bond indices experienced a negative return over the month.

Currencies

The Australian Dollar strengthened against all major currencies over the month except the British Pound, against which it was roughly flat. The AUD rose almost 3% against the Japanese Yen, whilst the USD exchange rate increased 0.35 US cents to finish the month at 0.7224.

Emerging markets, particularly those that hold substantial foreign denominated debt, experienced a difficult month. The Argentinian Peso continued to slide whilst the Turkish Lira rebounded somewhat on the back of another large interest rate rise from their central bank, with Turkish interest rates now at 24%.

Commodities

Oil prices fluctuated over the month, initially falling on the back of higher than expected US gasoline inventories but then rebounding strongly as producers consciously decided not to increase supply. Brent Crude reached a four year high with a price of $81 USD a barrel.

Precious metals performance was mixed with gold continuing to decline and silver rising modestly over the month. Industrial metals fared somewhat better with iron ore and copper the stand-out performers.

Performance of key markets 

Asset class	Index	Month (% change)	FYTD (% change)	1 year (% change)
Australian Shares	S&P/ASX 200 Acc. Index	-1.3	1.5	14.0
International Shares	MSCI World Ex Aust Unhedged A$ Net Return	0.6	7.4	20.8
International Shares	MSCI World Ex Aust Hedged A$ Net Return	0.8	5.6	12.9
US Shares	S&P 500 Index	0.6	7.7	17.9
UK Shares	FTSE 100 Index	1.2	-0.7	6.1
Japan Shares	Nikkei 225 Index	6.2	8.9	20.8
Australian Property	S&P/ASX 200 A-REIT Index	-1.8	1.9	13.2
Australian Fixed Interest	Bloomberg AusBond Composite Index	-0.4	0.5	3.7
Australian Cash	Bloomberg AusBond Bank Bill Index	0.2	0.5	1.9
Currency	AUD/USD	0.5	-2.4	-7.8

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

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