Market Wrap - May 2019

At a glance

Global stocks in May fell for the first time in five months after China-US trade talks unexpectedly broke down, reports pointed to a slowing in the US economy and political uncertainty rose in the eurozone. Australian stocks, however, rallied on the surprise re-election of the Liberal National coalition and after the Reserve Bank of Australia hinted it would cut the cash rate to a fresh record low. A drop in the Australian dollar reduced losses for those who have unhedged investments in global equities. During the month, 10 of the 11 sectors slid in US-dollar terms. IT (-8.4%) fell the most while real estate (+0.2%) rose. The Morgan Stanley Capital International (MSCI) World Index fell 5.8% in US dollars and 4.3% in Australian currency.


Australian stocks gained for a fifth consecutive month after the government led by Prime Minister Scott Morrison defied opinion polls to claim a third consecutive term and expectations rose of imminent rate cuts. Talk of rate cuts intensified after RBA Governor Philip Lowe told an audience the Reserve Bank would “consider the case” for cutting rates to “support jobs growth”. Reports showed retail sales rose 0.3% in March, well below the increase of 0.9% in February, while dwelling approvals slumped 4.7% in April, to be down 24.2% over the 12 months. The RBA’s policy-setting board kept the cash rate at a record low of 1.5% on which it has sat since August 2016. The S&P/ASX 200 Accumulation Index rose 1.7%.


US stocks slumped to their first decline in five months on concerns a trade war could intensify between China and the US, doubts rose about the US economic outlook and company earnings disappointed on a key measure. US President Trump lifted punitive tariffs on about US$200 billion worth of Chinese imports after he said China has reneged on a trade agreement, and China responded in kind. The sense of crisis escalated when Trump barred US companies from using equipment made by firms that were “a risk to national security” and the US government said US companies cannot do business with Chinese telecom Huawei without permission. In signs of slowing growth, retail sales fell 0.2% in April from the previous month while orders for ‘durable’ goods declined 2.1% in April. Revised data showed the US economy expanded at an annualised pace of 3.1% in the first quarter, up from 2.2% in the last quarter of 2018. Financial research and data company FactSet said that S&P 500 companies reported a decrease in earnings of 0.4% over the three months, the first decline since the second quarter of 2016. The S&P 500 Index lost 6.6%.


European stocks fell for the first time in five months after largely directionless EU elections and the impasse over the UK’s departure from the EU added to political uncertainty and reports on the economy were lacklustre. In the EU poll, right-wing populists and left-wing parties performed well while the centrist parties that lead Europe’s integration struggled. In the UK, where the Brexit party came first in the EU elections, Prime Minister May announced she would step down on June 7 after her fourth and final plan for Brexit sank before it could warrant a parliamentary vote. German bond yields fell after reports showed the economy was struggling. The first reading of output for the first quarter revealed eurozone GDP rose only 0.4% in the three months to March, to be up just 1.2% over the 12 months. The Euro Stoxx 50 Index dropped 6.7%.

Other markets

In Asia, Japanese stocks slumped on concerns about global trade even though a report showed the economy expanded for a second consecutive quarter in the three months to March, when it grew at an annual pace of 2.1%. Chinese stocks fell on trade-war concerns and after the official purchasing managers index fell into contraction territory, declining to 49.4 in May from 50.1 in April. Japan’s Nikkei 225 Index sagged 6.0%. China’s CSI 300 Index lost 7.2%. The MSCI Emerging Markets Index shed 7.5%, as Brazil’s economy shrank 0.2% in the first quarter, its first contraction since 2016.


Movement in benchmark indices are in local currency unless stated otherwise. As is common practice, all indices mentioned are price indices apart from the MSCI indices and the S&P 200 Accumulation Index.

Sources: J.P. Morgan, FactSet, The Financial Times, Bloomberg and national statistical including the Australian Bureau of Statistics, Eurostat, the US Department of Commerce and the US Department of Labor.


The information contained in this material is current as at date of publication unless otherwise specified and is provided by Matrix Planning Solutions Limited ABN 45 087 470 200, AFS Licence No. 238 256 (Matrix). Any advice contained in this material is general advice only and has been prepared without taking account of any person’s objectives, financial situation or needs. Before acting on any such information, a person should consider its appropriateness, having regard to their objectives, financial situation and needs. In preparing this material, Matrix have relied on publicly available information and sources believed to be reliable. Except as otherwise stated, the information has not been independently verified by Matrix. While due care and attention has been exercised in the preparation of the material, Matrix give no representation, warranty (express or implied) as to the accuracy, completeness or reliability of the information. The information in this document is also not intended to be a complete statement or summary of the industry, markets, securities or developments referred to in the material. Any opinions expressed in this material, including as to future matters, may be subject to change. Opinions as to future matters are predictive in nature and may be affected by inaccurate assumptions or by known or unknown risks and uncertainties and may differ materially from results ultimately achieved. Past performance is not an indicator of future performance.