Market Review

October 2019

Global share markets were generally positive as confidence increased in October. For Australian investors, strength in the Australian dollar eroded some of the returns on an unhedged basis resulting in an overall gain of 0.4% for international shares. The strongest market was Japan with gains of 5%, whilst the US and German markets were also positive. The Australian share market had a soft month, declining 0.4%. Following several strong months in bond markets, rising Australian government bond yields caused a small decline for the month, but fixed income returns over one year remain very strong with bond yields significantly lower than 12 months ago.

Optimism for trade war resolution

October provided growing optimism for a resolution to the US/China trade war, with what is being referred to as a ‘phase one’ deal being announced towards the end of the month. The deal may give rise to increased exports of agricultural goods to China and a reduction in tariffs imposed by the US. If formally agreed, the deal would likely be a step in the right direction, boosting economic growth and lessening market concerns, but there remains a long path to final resolution.

Civil unrest takes its toll

In addition to tensions with the US, China’s relationship with Hong Kong has become strained as opposition to proposed extradition laws resulted in a series of largescale protests, putting significant pressure on both the relationship between Hong Kong and China and the region’s economy. The Hong Kong economy shrunk by 3.2% in the third quarter and is now in its first recession since the global financial crisis. This adds concern for the mainland Chinese economy which has been slowing of late, making a long-term resolution to the US relationship even more important.

Central banks cut rates 

Although widely expected by investors, the decision by the US Central Bank in October to cut the US official interest rate target range to 1.50% - 1.75% is important, signalling that the US is concerned that their economy has the potential to slow down without further rate cuts. The Reserve Bank of Australia (RBA) also cut interest rates as expected by 0.25%, with the cash rate now sitting at a new low of 0.75%. Whilst the RBA have signalled that interest rates are steady for now, most economists believe that at least one more rate cut is possible over the next six months. In Europe the European Central Bank left interest rates unchanged in October and they are expected to
stay around zero for some time.

Brexit postponed further, end in sight

Belief that a ‘no deal’ Brexit looks increasingly unlikely resulted in the British pound rallying in the wake of news that Prime Minister Boris Johnson had struck a new deal with the European Union. The deal will see Northern Ireland leave the customs union but will not call for the inspection of goods being transported across the border with the Republic of Ireland. The deal will however need to get through Parliament, and with a general election to be held on 12 December and the deadline to leave the EU pushed back to January 2020, Brexit is far from resolved. Nevertheless, these developments are encouraging and will hopefully be a path to a more stable economic


With global interest rates at extremely low levels we believe that governments around the world will need to increase the use of fiscal policies such as spending on infrastructure or tax cuts to improve market conditions, rather than relying on ever-lower interest rates. On the positive side, the US is the world’s most influential economy and it continues to move at a steady pace, and major economies around the world are not in recession.

There remains a great deal of uncertainty in world share markets as well as fixed income markets and in order to manage these risks EISS Super’s portfolios are well diversified and positioned to take advantage of opportunities as they arise.



1 Bloomberg Finance L.P. Past performance should not be regarded as an indication of future performance.