Following a period of equity market momentum fuelled by expected fiscal stimulus at the hands of President Trump, risk sentiment tapered towards the end of January 2017 as uncertainty surrounding political promises gathered. As such, equity markets gave back some of the November and December 2016 gains and bond markets were able to benefit late in the month following a particularly weak 2016 Q4.
Major central banks fell quiet in January as the European Central Bank (ECB) made no significant changes to policy, and Bank of Japan (BOJ) revised its economic growth forecasts whilst also making no change. As expected following the December raise, the United States (US) Federal Reserve (Fed) did not adjust interest rates in its 1 February 2017 decision. The minutes did note, however, that “almost all” officials saw potential for expansionary fiscal policy in the period ahead.
The Australian equity market contracted over January, with the S&P/ASX 300 Accumulation Index decreasing 0.8% for the month. Returns were negative across the majority of the market spectrum, with the best relative performer being the S&P/ASX mid 50 Accum, increasing 0.1% for the month. The worst performer was the S&P/ ASX Small Ordinaries, decreasing by 2.4% over the month. The best performing sectors were Materials (+4.8%) and Healthcare (+4.6%). The weakest performing sectors were Real Estate (-4.6%) and Industrials (-4.4%). The largest positive contributors to the return of the index were CSL, BHP and Rio Tinto, with absolute returns of 12.0%, 6.4% and 11.8% respectively. In contrast, the most significant detractors from performance were Brambles, ANZ and Westpac with absolute returns of -15.9%, -3.3% and -2.3% respectively.
The broad MSCI World ex Australia Index was up 1.4% in hedged terms and down 2.4% in unhedged terms over the month, as the Australian dollar appreciated against the major currencies over January. The strongest performing sectors were Materials (+1.8%) and Information Technology (-0.3%), while Energy (-7.5%) and Telecommunication Services (-4.1%) were the worst performers. In Australian dollar terms, the Global Small Cap sector contracted 2.4% while Emerging Markets increased 0.6% in unhedged Australian dollar terms.
Over January, the NASDAQ returned 4.3%, the S&P 500 Composite Index rose by 1.9% and the Dow Jones Industrial Average increased 0.6%, all in US dollar terms. Major European equity markets experienced mixed returns as the FTSE 100 (UK) decreased 0.6%, the CAC 40 (France) decreased 2.3% while the DAX 30 (Germany) increased 0.5%. In Asia, the Indian BSE 500 was up 5.6%, the Hang Seng Index up 6.2%, the SSE Composite (China) up 1.8% and the Japanese TOPIX was also up 0.2% over January.