Equity markets were generally higher for the month. This was likely because the US election outcome was no longer an unknown. Strong corporate earnings and some surprise positive economic data were also factors that supported higher equity markets. The MSCI World ex-Australia Index (Hedged) returned 5.0% for November.
USA
US equities outperformed broader Developed Markets over the month. The S&P 500 returned 5.9%. US equities responded positively to US election outcome. A ‘Republican Sweep’ of both houses of congress was also probably viewed as a ‘pro-growth’ outcome, something which may be seen to support corporate earnings.
Europe
The MSCI Europe Index underperformed Developed Markets. MSCI Europe returned 0.9% over November. Business indicators point to an ongoing reduction in private equity activity and there has been ongoing weakness in economic data for the Eurozone.
Asia
Asian equities were broadly weaker, with negative returns across China, Japan, Korea and Taiwan. Weakness in these equity markets was partially linked to concerns about the potential impact of proposed US tariffs.
Australia
Australian equities were stronger over November (3.7%). The IT sector was the standout (10.2%). Utilities also performed well (9.1%). A weaker Materials sector (-2.8%) was the main cause of the underperformance of Australian equities compared to Developed Markets.
The November meeting of the Reserve Bank of Australia left interest rates unchanged, in line with expectations. The October monthly CPI figure rose 2.1% over the previous 12 months. Food, alcohol and tobacco were the main price rise drivers.
Currency and bonds
Australian bonds returned 1.1% and Overseas bonds returned 1.2% over November. Lower bond yields may have reflected some slightly weaker US retail sales data, along with inflation data that was in line with market expectations. The Australian 10-year government bond yield fell 16bps to 4.34%. The US 10-year yield fell 11bps to 4.17%.
Relative to the US Dollar, major currencies were marginally weaker. The Australian Dollar fell -0.5% compared to the USD. Ongoing strength in the US economy relative to Europe and Australia was a likely reason. Rate differentials* were also likely supportive to the USD as well, with fewer rate cuts by the US Fed now priced in by markets.
* A rate differential contrasts the interest rates of 2 similar interest-bearing assets and represents the difference between them. Definition from Investopedia