Heightened geopolitical risks, brought on by weapons testing in North Korea and the accompanying political rhetoric, wove a cautious atmosphere for August 2017. The volatility caused some flight to quality as bond yields decreased across global markets and gold prices increased by 5.0%. The United States (US) Federal Reserve (Fed) was quiet over August, uncertain around the lower levels of inflation than expected, despite positive movements from other indicators. Meanwhile, President Trump upped his rhetoric on pro-growth agendas, with commitment to tax reform and infrastructure spending. Over these developments, the US gross domestic product (GDP) assumption was revised up to 3.0% for Q2 2017, while unemployment increased slightly to 4.4%.
The broad Australian equity market was positive over August, with the S&P/ASX 300 Index returning 0.7% over the month. The highest positive performer was the S&P/ASX Small Ordinaries Index, increasing 2.7% for the month, while the S&P/ASX 100 and S&P/ASX MidCap 50 Index were the weakest performers, returning 0.5% over the month. The best performing sectors were Energy (+5.2%) and Consumer Staples (+5.2%). The weakest performing sectors were Telecom Services (-7.2%) and Financials (-2.1%). The largest positive contributors to the return of the index were BHP, Wesfarmers and Newcrest Mining, with absolute returns of 6.3%, 5.1% and 13.2% respectively. In contrast, the most significant detractors from performance were CBA, Telstra and QBE with absolute returns of -6.9%, -9.9% and -11.5% respectively.
The broad MSCI World ex Australia (NR) Index was up 0.2% in hedged terms and 0.8% in unhedged terms over the month, as the AUD lost some momentum, depreciating against majority of the major currencies. The strongest performing sectors were Utilities (+3.8%) and IT (+3.7%), while Energy (-2.7%) and Financials (-1.3%) were the worst performers. In AUD terms, the Global Small Cap sector increased by 0.6% while Emerging Markets increased by 2.9%. Over August, the NASDAQ rose 1.3%, the S&P 500 Composite Index rose by 0.3% and the Dow Jones Industrial Average increased by 0.7%, all in US dollar terms. In local currency terms, major European equity markets experienced mixed returns as the CAC 40 (France) decreased 0.2%, the DAX 30 (Germany) decreased 0.5% while the FTSE 100 (United Kingdom (UK)) increased by 1.6%. In Asia, the Japanese TOPIX was flat over August, while the SSE Composite (China) was up 2.7% and the Hang Seng Index was up 3.1%. The Indian BSE 500 decreased 1.0% over August.
The AUD depreciated against the majority of major currencies over August, finishing with a decreased Trade Weighted Index of 66.3 on 31 August 2017. The AUD depreciated against the USD (-0.7%), the Euro (-2.2%) and the Yen (-1.1%) but appreciated against the Pound Sterling (+0.5%). On a trade-weighted basis, the local currency decreased 1.5% over the month.