Market update

September 2017

September saw strong performance from international equity markets and a flat Australian equity market. International equity markets returned 3.4% over the month in unhedged terms, aided by some weakness in the Australian dollar (AUD). Although the Australian equity market was flat, results at the sector level varied. For example, the Telecommunications sector returned -4.6% while other sectors, such as Healthcare (2.2%) achieved solid returns. Bond markets were modestly weaker across the globe as yields rose, anticipating rate increases and the removal of monetary accommodation (i.e. a reduction in practices by central banks such as the Reserve Bank of Australia (RBA) or US Federal Reserve that encourage economic growth).

Further tensions with North Korea and the ongoing fallout from the hurricane season dominated news headlines in September. Concerning North Korea, anxiety escalated when the nation fired a second missile over Japan, an act which was countered with increased sanctions by the United States and the European Union. So far tensions have not escalated into military conflict and markets do not appear affected by the situation on the Korean peninsula.

Other news focused on fundamentals, with the major economies continuing to perform strongly. Consumers remain generally optimistic given the continuation of low interest rates. Manufacturing businesses are also upbeat, which has lead to strong economic growth particularly in the US. On the other hand, US jobs data disappointed with increased levels of people looking for work and new home sales coming in weaker than expected. We note though, that some of this poorer economic news may partly be attributed to the havoc the hurricane season caused. The US Federal Reserve left rates unchanged, noting that although inflation will likely be pushed up in the near-term due to hurricanes Harvey, Irma and Maria, in the medium term the outlook is for below-target inflation. US equities lagged other key markets such as Europe at 5.2%, but returned a solid 2.1%.

Eurozone inflation was in line with expectations and the European Central Bank (ECB) made no major changes to its monetary policy settings. As in the United States, consumer confidence remains high in the Eurozone. The following chart illustrates consumer confidence in the Eurozone over the past 15 years.

On the political front, a German federal election saw Angela Merkel re-elected as Chancellor. This was expected and markets seemed welcoming of the news with the German equity market returning a strong 6.4% over the month in local currency terms. In the UK, inflation was above expectations at 2.9% year on year, while unemployment reached a new low of 4.3%. The Bank of England (BoE) left the bank rate on hold at 0.25%, commenting that inflation is expected to rise above 3% in October.

Emerging markets were not as strong as other global markets over the month, returning 0.7%. China continues to perform well given its continued economic growth.

In Australia, unemployment was unchanged at 5.6%. Consumer sentiment has improved as people become used to the higher prices of utilities such as electricity and gas but retail spending remains subdued with wage increases remaining low. The RBA left the cash rate on hold in September marking it the thirteenth consecutive month of record low rates.


Although September was a disappointing month for bonds, and to a lesser extent domestic equities, strong returns from international equities highlights the importance of maintaining a diversified portfolio. Looking forward, the combination of strong economic fundamentals and no obvious catalysts for change leads us to a cautiously optimistic view of investment markets. Our expectations of future returns remain more modest than in recent years due to the continuation of low interest rates.

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