The ASX200 Index closed the month of January up 3.86% following what was a strong start to the year. Global markets fared remarkably well with positive performances seen across the board. The Dow Jones Industrial Index closed the month up a whopping +7.17%, the French CAC +5.54% and the Shanghai Composite Index +3.65%. The only index which bucked the trend was the Indian Index which closed -6.32%. On the local bourse, energy stocks were the clear stand out rising by 11.53% on the back of a soaring oil price. The price of crude rose more than 18% in January dispelling worries about slowing global growth and weakening fuel demand. The WTI crude oil price rose from S. West Texas Intermediate crude prices ended Thursday’s session down 44 cents at $53.79 a barrel, after hitting a two-month high at $55.37. WTI recorded its biggest rise since April 2016 and its best January since the futures began trading in 1983 as a result of the introduction of Venezuelan oil sanctions, a drop on US fuel stockpiles and a change in monetary policy stance by the US Federal Reserve. Telecommunications +7.78%, IT +9.28% and Materials stocks +6.97% all fared quite well. The only sector of the market that did poorly was the banking sector and for obvious reasons. Whilst the findings from the Royal Banking Commission were largely a positive for the banks, the market was expecting a worst case scenario.
All in all, a great start to the year. The index back up around the 5900 mark.
Whilst it is a promising start, markets are still skittish and remain glued to some of the overhanging themes that plagued 2018. Many remain unresolved. These include; US-China trade war concerns, Brexit complications and a problematic US Government shutdown. To add to it, the IMF downgraded global economic growth forecasts and issued a softer outlook for the Chinese economy during the month of January. This however didn’t stop the US share market from recording one of its best months in quite a while. Solid gains were posted after the Federal Reserve left rates unchanged and issued a dovish outlook statement which promised to be patient with its interest rates stance. It seems the further gradual increases are the thing of the past. There are too many issues that are clouding the picture, forcing the Fed to become more accommodating and remain on hold for the foreseeable future. The US market welcomed the news rising 435 points on the day. Bond yields fell.
US-China trade war concerns are still of major concern to global markets, but we remain of the view that a deal will be nutted out soon. Whilst it is in Trumps favour, both presidents are under heavy pressure to get a deal done because economic growth is starting to weaken in both economies. As we all know markets hate uncertainty, so any done deal will be a huge positive for markets world-wide. The March 1 deadline may be extended but shouldn’t cause any major implications.
Commodity prices rose with iron ore receiving a huge boost due to Brazilian miner Vale, announcing production cuts due to its dam disaster. The rise in iron ore helped boost the share prices of Aussie iron ore miners such as BHP, Rio Tinto and Fortescue Metals.
February market Outlook:
While 2018 was a volatile year we think 2019 is likely to be a lot more stable and predictable. The US-China trade spat will be resolve within the next few months and could see markets rally quite hard. It could prove to be the positive catalyst needed for a sharp recovery.
In Australia, reporting season is upon us. It’s that time of the year when every ASX listed company releases their HY profit result. Most report their earnings as at 30 June (full year) and 31 December (interim or half-year). It’s a nervous time for investors, because any unexpected fluctuations in earnings can have a significant impact on a company’s share price. It’s all about market and analyst expectations. The aim of the game is to beat these expectations. If a company can do that, it is handsomely rewarded and cheered on. Share price rises. However, on the flip side, if a company misses expectations it is severely punished, and its share price hammered. It’s much like a game of darts. Hit the bullseye and the crowd cheers (share price rises). Miss and its game over (share price is hammered).
Whilst we don’t have a crystal ball what we do know is that the Royal Banking Commission is out of the way and its recommendations were modest at best. This removes uncertainty and risk. UBS is expecting the Australian market to deliver a below trend 4.3% pace of earnings growth in FY19. Their forecast is based on a pullback in resources, a moderation in domestic activity, weaker business conditions, a drop-in car & retail sale and a slowdown in the housing market. Sectors that are expected to do well are Healthcare, Consumer Staples, Gaming and Financials.