Investment Newsletter – March 2014

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Monetary policy – the Reserve Bank of Australia (RBA) left the cash rate unchanged at 2.5% at their March 2014 meeting for the seventh consecutive month. We believe the RBA is likely to continue to keep the cash rate on hold for the moment.

Inflation – The RBA revised up its short term inflation forecasts announcing that it now expected inflation to reach 3% over the year to June 2014.

Employment – Employment increased in the Australian economy by 47,400 in February 2014. However, despite this, unemployment rate in still rose 0.1% to 6.0% for the month.

United States

Growth – The US annual GDP growth rate for the December 2013 Quarter had previously been estimated at 3.2% however the official rate for the quarter came in lower at 2.4%.

Manufacturing – The ISM Manufacturing PMI rose to 53.2 in February, up from 51.3 during the previous month.

Monetary policy – The US Federal Reserve announced a further reduction of $10 billion per month to its monthly asset purchase programme, decreasing the monthly asset purchase rate from $65 billion to $55 billion. It also announced that it would continue to hold interest rates at near 0%.

Employment – The US unemployment rate rose by 0.1% to 6.7% for the month despite creating 175,000 new jobs. The participation rate remained steady at 63.0% for the month.

Europe

Growth – Eurozone GPD growth increased by 0.3% for the fourth quarter of 2013 and is expected to further increase during 2014.

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Manufacturing – Eurozone manufacturing continued to expand in February however the rate of expansion fell to 53.2 (down from 54.0 in the previous month).

Inflation – The European Central Bank (ECB) left rates on hold at 0.25% for the month
despite a downgrade of their 2014 annual inflation estimate to just 1.2%. The ECB has signalled in may look to cut rates at its next meeting.

Employment – Eurozone unemployment remained stubbornly high at 12.0% for the month of February 2014. It has been steady at this rate since October 2013. Unemployment rates across the Eurozone are spread between Austria (at 4.9%) and Greece (at 27.5%).

China/Japan

Growth – The Japanese annual GDP growth rate came in lower than expected for the December 2013 quarter at 1.0%

Manufacturing – Chinese manufacturing softened in December with the HSBC China Manufacturing PMI falling to 48.5 in February, down from 49.5 in January.

Inflation – Chinese inflation remained low throughout January 2014 with the Chinese consumer price index rising by 2.5% in the year to 31 January 2014.

Commodity Prices

Commodity prices were generally stronger during February 2014. The Oil price was up 1.2% to $109.29/bbl, Gold prices were also up 6.7% to US$1,325.70/oz. Iron Ore prices were the notable exception, dropping 6.3% to US$119.00/MT, which is a 7 month low.

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Policy Interest Rates
Selected Advanced Economies
as at 28 February 2014

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Policy Interest Rates
Emerging Markets
as at 28 February 2014

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[box] After a weak start to the calendar year in January 2014, the Australian share market rebounded strongly during February, The half year profit reporting season continued to be better than expected pointing to likely growth in share prices. Our belief is that the market is still currently at fair value based on improved profit expectations for the 2014 financial year. We expect the Australian Equity market to trade in a higher range than last year, between 5,200 and 5,800 over the next 6 months.[/box]

Asset Class Returns for Selected Market Indicators

As at 28 February 2014

Selected Market Indicators Commentary

For the Month Ended 28 February 2014

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Australian Shares

The Australian share market was up in February returning +4.9% on the back of better than expected profit results revealed during the recent company reporting season.

The best performing sectors for the month of February 2014 were Consumer Discretionary (+6.8%), Information Technology (+6.3%) and Energy (+5.7%). The weakest performing sectors were Telecommunications Services (+1.4%) and Healthcare (+2.9%).

Global Shares

Global share markets also had a generally good month in February 2014 with the MSCI World (ex. Australia) Index rising +4.3% on a fully hedged basis on the back of data which continues to indicate gradual but steady growth in the Europe.

The strongest performing global sectors for the month were Healthcare (+4.3%) and Materials (+3.7%), while Telecommunications Services (+0.2%) and Financials (-3.7%) were the weakest performing sectors.

Markets in the U.S. followed the global trend, also finishing the month of February higher despite the U.S. Federal Reserve announcing that it would taper it’s bond buying programme by an additional $10 billion per month. Both the NSADAQ (+5.0%) and the U.S. S&P 500 Composite Index (+4.6%) were up for the month. 

European markets were also up despite continuing concern surrounding the potential flow on effects of

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 the weaknesses in emerging markets and the rising geopolitical tensions between the Ukraine and Russia. Markets in the UK (+5.0%), France (+5.8%) and Germany (+4.1%) were all up for the month.

Asian markets followed suit and were also generally up for the month with markets in India (+2.8%) and China (+1.1%) being the strongest performing.

Property

Domestic Real Estate Investment Trusts (REITs) were up in February returning +4.3%, while global REIT’s were also up, gaining +3.6% on a fully hedged basis.

Fixed Interest (Bonds)

Global sovereign bond yields were mixed in February with 10 year bond yields rising  in the UK (+1bps to 2.72%) and falling in the US (-1bps to 2.66%) and Germany (-4bps to 1.53%) over the month.

Australian bond yields were up in February 2014 with 10 year bond yields rising +2bps to 4.02%, while Australian 5 year bond yields remained steady at 3.29%.

Australian Dollar

The Australian dollar generally appreciated against other major currencies in February 2014. The A$ rose 2.1% against the US$, finishing the month at US$0.895. The A$ also appreciated against the Euro (+1.0%) and the Pound Sterling (+0.8%).

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[box] GENERAL ADVICE WARNING © 2014 Harvest Employee Benefits. This Newsletter has been prepared for Harvest’s clients. The information contained herein is current and up to date at the time it was prepared. Harvest Employee Benefits Pty Ltd, ABN 74 107 226 693 is a Corporate Authorised Representative and Mario Isaias, Noel Hucker and Inbam Devadason are Authorised Representatives of Harvest Financial Group Pty Ltd, ABN 80 111 998 068 AFS Licence No 284909. Harvest reserves the right to correct any errors or omissions. Any advice contained herein has been prepared without taking into account any individual persons objectives, financial situation or needs. As such, before acting on any information contained herein, a person should consider whether the information is appropriate for that person, having regard to their objectives, financial situation and needs. The relevant Product Disclosure Statement should be obtained and read before making any decision regarding information contained in this Newsletter.[/box]