The Australian dollar was weaker over the month, with falls in bulk commodity prices, particularly iron ore leading to the falls. There was also a shift lower in geopolitical risks with the election in the UK and outcome of the first round of the French election leading to the Australian dollar to fall 3.1% against the GBP and 4.0% against the EUR.
Against the US dollar, the Australian dollar fell 1.8% to $US0.7488.
The AUD was also weaker against the Yen (-1.7%) but rose 0.2% against the New Zealand dollar.
Commodity prices were predominantly lower in April, led by metal prices, while some energy prices, including coal and US gas prices were higher.
The price of West Texas Intermediate (WTI) Crude oil finished the month at $US49.3/bbl, down 2.5%/mth, while the price of Brent Crude oil was down 3.2% to $US52.1/bbl. The main catalyst were strong imports into the US supporting oil inventory levels.
Gas prices were higher with the US natural gas Henry Hub futures price up 2.2% $US3.16/MMBtu and after a sharp 23% gain in March.
Iron ore prices continued to retreat in the month with the spot iron ore contract (Qingdao 62% Fe fines) down by 14.4% to $US68.8/t in April, down from the recent peak of $US94.9/t in February. The recent volatility in the iron ore price is largely due to speculation and trading rather than fundamentals.
Coal prices rose in April, with the price of coal at the Newcastle Coal terminal rising 3.5%, largely as a result of weather impact from Cyclone Debbie in Queensland.
Base metals were mixed with the London Metals Exchange (LME) Index down by 2.7%. Nickel was down 5.7%, elsewhere aluminium (-2.6%), zinc (-5.3%), lead (-3.9%) and tin (-1.4%) all fell. Copper was also weaker, down 1.7%.
The spot gold price rose 1.5% to US$1,268.3/oz.
The S&P/ASX 200 Accumulation Index rose by 1.0% during April. The strongest performers were Industrials (+4.3%), IT (+4.1%), Health Care (+3.2%), Utilities (+3.1%), Property Trusts (+2.6%) and Financials (+1.9%).
The worst performer by some margin were Telcos (-9.9%), which were led lower by Telstra, TPG Telecom and Vocus Communications – the worst performer in the ASX 100 during April. Energy (-0.6%) and Materials (-0.2%) edged lower, as weakness in commodity prices, especially iron ore, continued.
The S&P ASX 200 A-REIT index rose by 2.6% in April in AUD terms. Diversified A-REITs led the gains and climbed 3.4%, helped by robust performance from residential business segments.
The best performing A-REITs included industrial A-REIT Goodman Group (+4.8%) and diversified A-REIT Stockland (+4.5%). Goodman Group continues to see keen demand for its high quality logistics facilities, driven by the growing popularity of e-commerce. This is consistent with lacklustre recent sales figures reported by retail A-REITs. Stockland gained as investors focussed on strong results from its residential business, including a 24% increase in net deposits for the first nine months of this financial year, compared to the same period a year ago.
The worst performers included Cromwell Property Group (-1.6%) which made an indicative, non-binding proposal to acquire Investa Office Fund for A$4.85.
Listed property markets offshore also gained in April. The FTSE EPRA/NAREIT Developed Index (TR) climbed by 1.1% in US dollar terms. The UK was the best performing market, with a gain of 8.5%. The worst performing market, Japan, finished the month 0.4% higher.
Global developed market equities
Global developed equity markets began the month cautiously with no shortage of geopolitical risks including French elections, North Korea, Syria and the unwinding of optimism around President Trump’s policy timeline. However the outcome of the French election towards the end of month saw gains in most global developed equity markets.
The International Monetary Fund (IMF) upgraded its global economic growth forecasts. Global growth of 3.5% is expected in 2017 and 3.6% in 2018. This compares to 3.1% in 2016. The upgrades are broad based amongst advanced and developing economies, and through trade and manufacturing.
The MSCI World Index was up 1.3% in US dollar terms in the month and 3.6% in Australian dollar terms.
The VIX Index, a market estimate of future volatility of the S&P500 Index finished the month at 10.82 yet moved in a wider range given the geopolitical risks in the month, it peaked at 15.96 on 13 April before falling into month end.
In the US, the S&P500 (+0.9%), the Dow Jones (+1.3%) and the NASDAQ (+2.3%) all rose. The NASDAQ continues its outperformance, driven by the technology sector, particularly Google which rose 9.0% in the month.
Equity markets in Europe performed well as geopolitical risks eased in the month. The large cap Euro Stoxx 50 Index rose +1.7%. Italy (+0.6%), France (+2.8%) and Germany (+2.4%) all rose. The FTSE100 fell 1.6% with the snap election called in the month. The pound rose sharply on the announcement, with it finishing 3.1% higher against the US dollar in April.
Asia markets were stronger, with the Japanese Nikkei 225 up 1.5%. The other major markets also moved higher; Hong Kong (+2.1%) while Korea surprisingly rose 2.1% despite rising geopolitical tensions with North Korea.
Global emerging markets
Emerging market equities had another positive month on improved global growth and falling concerns around President Trump’s more controversial trade policies. The MSCI Emerging Market Index was up 2.0% in USD terms and 4.3% in AUD terms.
MSCI EM Latin America (-0.4%) was weaker with lower commodity prices. While MSCI EM Asia ex Japan gained 2.1% over the month. Meanwhile the Shanghai Composite Index was down 2.1%, despite better economic data.
The MSCI EM Europe, Middle East and Africa rose 3.9%, with strong gains in Turkey post the referendum that increased the powers of President Erdogan.
Global and Australian developed market fixed interest
Monetary policy and US political uncertainty took a back seat in April as geopolitical risks and the first round of the French election were front and centre in the month. Rising tensions between the US and North Korea over missile testing and the US retaliation on Syria’s chemical weapons dominated headlines. The uncertainty largely led to a risk-off tone in markets early in the month before receding after the French election result.
Against this backdrop, bond yields in Europe traded in a wide range but moved little month on month with the 10-year German bunds down 1 bps to 0.32%. US yields traded in a similarly large range given the geopolitical conflicts and 10-year yields ultimately fell 11 bps in the month to 2.58%. UK 10-year gilts were down 5 bps to 1.09%. Japanese bond yields fell 6 bps in the month to 0.018%.
Early in the month the spread between US and Australian 10-year yields compressed to a 16-year low of 19bps. This was short-lived and Australian 10-year bond yields soon rose with global yields, finishing the month at 2.58%, down 13bps.
Global investment grade credit spreads reverted back to mild tightening in the month with the majority of this coming after the French election results.
The broader risk-on tone given the lack of volatility priced in to markets saw Investment Grade credit continue to provide an opportunity for investors. There was robust supply in the month accordingly.
Specifically the Bloomberg Barclays Global Aggregate Corporate Index average spread moved 3 bps tighter to 1.17%. US credit moved 2 bps tighter, with the Bloomberg Barclays US Aggregate Corporate Index average spread closing at 1.10%. In Europe, the spread on the Bloomberg Barclays European Aggregate Corporate Index was 7 bps narrower to 1.11% on the back of the French election results.
US high yield credit spreads reacted notably to the change in sentiment following the French election results with the spread on the Bank of America Merrill Lynch Global High Yield index (BB-B) tightening from a high of 3.27% mid-month to 2.99% by month end, down 13 bps on the month. In addition, the high yield market continues to be impacted by downgrades particularly in the energy and mining sectors.
Australian credit spreads moved a little tighter in the month largely ignoring the volatility in outright yields and the widening of global credits spreads witnessed last month. Specifically the average spread on the Bloomberg Australian Corporate Index moved 4 bps tighter to 101 bps.
Source: Colonial First State.