Quarterly Investment Commentary

Economic environment

In early February, share markets had a sharp reaction to a higher-than-expected wage growth number released in the US. This was interpreted as the onset of inflation which could solicit a response from the US Federal Reserve in the form of more interest rate hikes. Later in the quarter, President Trump announced the imposition of tariffs, mainly targeted at China, which also contributed to market volatility. Despite initial indications from China that it would respond to any tariffs imposed on its exports with commensurate countermeasures, both countries had taken a more conciliatory tone by late March and early April.

Elsewhere, economic data out of the Eurozone was weaker than expected, with first-quarter data indicating the economy was slowing. The United Kingdom also made progress on its withdrawal agreement with the European Commission prior to its anticipated exit from the European Union next year.

In Australia, the Reserve Bank of Australia (RBA) kept interest rates on hold at 1.5% during the quarter.
The RBA noted the pick-up in the global economy over the past year and the expectation for continued growth over 2018 both globally and in Australia.

Shares

Global share market returns were generally negative over the March quarter, despite a strong start to the year in January. The UK, Europe and Japan were the weakest performing regions, while the US performed better in a relative sense. From a sector perspective, the Telecommunications Services, Energy and Consumer Staples sectors were the weakest performing sectors globally, while the Information Technology sector delivered a positive return.

The Australian share market also performed poorly over the quarter, with the Telecommunications Services, Utilities and Energy sectors weighing heavily on the overall market.

Fixed interest & cash

Global bond returns were muted over the quarter, as yields broadly moved higher (bond yields move inversely with bond prices). Yields in the US in particular moved higher as the market priced in a higher rate of interest rate increases than previously anticipated. In Australia, the 10 year bond yield declined (price increased) slightly over the quarter.