Selected market indicators for period ended 31 July 2017

Provided by Mercer. 
After a pause in June, global equity markets resumed their upward trend in July.

Despite confidence declining in Donald Trump’s ability to implement his pro-growth campaign promises, US equity market sentiment remains high. The Dow Jones Industrial Average closed the month in record territory, just short of the mystical 22,000 level. Global Bond returns were positive over the month as global yields unwound slightly.

The MSCI World Index increased over the month, up +1.4% (in local currency terms). Returns for unhedged global equities were flat, as the NZ Dollar appreciated over the month, most particularly against the US Dollar (+2.4%). New Zealand Shares performed broadly in line with other developed markets, returning +1.1%, New Zealand Government Bonds rose over the month, increasing by +0.4%. Global Aggregate and Government Bonds also rose, returning +0.4% and +0.6% respectively. Global Listed Property and Global Listed Infrastructure performed in line with the broader equity market, returning +0.9% and +1.5% respectively.  

An estimate of a Balanced Fund gross index return based on selected market indicators for July is +0.6%.

Significant recent items include:
  • The US Senate blocked yet another attempt to repeal and replace Obamacare. This raised further doubts over the ability of the Republican Party to implement the policies promised by Trump throughout the campaign, namely tax reform and infrastructure spending.
  • Commodity currencies such as the Australian, Canadian and NZ Dollar were well supported over the month. The US dollar remained under downward pressure; with the major currency trade-weighted-index (TWI) down for the fifth consecutive month.
  • June quarter headline inflation (New Zealand) came in a touch softer than expectations, at 0.0%. Annual inflation dipped from 2.2% to 1.7%
  • Andrew Little, the leader of the Labour Party,  was forced on to the back-foot following a succession of polls that had  Labour languishing in the early twenties. Andrew Little subsequently resigned and Jacinda Ardern was announced as the new leader of the party, hoping to turn around Labour’s fortunes before the upcoming election.

Trans-Tasman Equities
New Zealand equities performed well in July, increasing by +1.1% for the period. Strong performance in the Consumer Staples and Technology sectors aided returns, while the Energy and Telecommunication Services sectors detracted from performance. Over in Australia, the ASX 200 was flat for the period, with performance being hurt by the recent credit downgrades of Australia’s “big 4” banks. 
Global Equities
The MSCI World index delivered positive returns in July, rising by +1.4% for the period. Global Equities reached record highs and the VIX  index (a measure of expected market volatility) fell to its lowest level since 1993. Emerging Market Equities had a stellar month, returning 4.9% in local currency terms, well ahead of developed markets. 
Property and Infrastructure
Global Listed Property and Global Listed Infrastructure both rose over the month, returning +0.9% and +1.5% respectively. Both of these sectors benefitted from a slight fall in global bond yields during July. The recent release of positive construction spending reports supported returns in the Listed Infrastructure sector.
NZ Bonds and Cash
New Zealand Government Bonds (+0.4%) and New Zealand Corporate Bonds (+0.6%) both performed well in July. The 10 year NZ government bond yield remained steady over the period, closing at 2.99%. NZ Cash continues to perform as expected and has delivered better results than NZ Government bonds over the past 12 months.
Global Bonds
Global Bond markets also rose in July. Global Aggregate and Sovereign bonds returned +0.4% and +0.3% respectively. US Treasury yields fell towards the end of the month, on the back of soft US economic data and concerns over repeated missile launches from North Korea. 
The NZ dollar simultaneously strengthened against some major currencies, while falling against others in July. The NZ dollar continued to rise against the US dollar (+2.4%), rounding off the last 3 months up +9.2%. In contrast, the NZ dollar depreciated against the Australian dollar and the euro over the month, falling by -1.6% and -0.9% respectively. On a trade-weighted basis, the NZ dollar rose +1.1%.


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