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Equity markets continued to rise over April as prospects for vaccine supply improved, the loosening of social restrictions continued in many countries and with the announcement of more planned fiscal spending in the US. In large part, developed market equities responded positively to the potential for additional fiscal stimulus by the US with the Biden Administration proposing two more spending packages: the US$2.3tn American Jobs Plan and the US$1.8tn American Families Plan. Elsewhere, European countries, after a difficult start to their vaccine campaign and struggling to contain recent COVID-19 outbreaks, have seen the pace of vaccination accelerate significantly.
In the US, the vaccine rollout continued to gather momentum. The pace of US jobs growth continued to accelerate as March saw 916,000 jobs added and the unemployment rate fall to 6.0%. The Biden Administration’s fiscal spending proposals are intended to invest in the country’s infrastructure and ensure a more equitable recovery through an expansion of social safety nets. The Administration plans to increase corporate tax rates from 21% to 28% and raise capital gains taxes to pay for the proposed spending plans. On the monetary policy front, Federal Reserve Chairman, Jerome Powell, dismissed inflation fears as being largely due to transitory factors despite a strong rebound of the US economy and reiterated that there would be no increase in interest rates for “some time”.
The MSCI World Index ex-Australia (hedged into AUD) rose 4.1% over April. In developed markets, the US (+5.4%) and Israel (+4.8%) outperformed the broader market, while Japan (-2.6%) and Switzerland (1.3%) underperformed. The MSCI Emerging Markets Index (unhedged) rose by 1.1%, underperforming unhedged developed markets (+3.2%) and was weighted down by the relative underperformance of China (1.2%) and India (0.4%). Hedged returns were higher than unhedged returns as the AUD appreciated against the USD over the month.
In Australia, equity markets rose but underperformed hedged overseas equities. Australian markets were supported by continued strong consumer and business sentiment surveys. The Reserve Bank of Australia (RBA) left its cash rate intact and noted that a stronger than expected economic recovery was well under way but that the Bank would not raise the cash rate until inflation is sustainably within its 2-3% target range.
The Australian equities market (S&P/ASX 300 Index) rose 3.7% in April, with generally positive performance across sectors. The top performing sectors were IT (+9.8%) and Materials (+7.5%), while Energy (-4.7%) and Consumer Staples (-2.4%) were the key detractors. Large Caps (+3.2%) underperformed Mid Caps (+5.3%) and Small Caps (+5.0%).
The Australian Dollar was mostly positive against the major currencies over the month, appreciating against the USD (+1.4%), JPY (+0.3%) and GBP (1.1%) but depreciated against the Euro (-1.0%). Australian and US Government bond yields fell over the month, continuing to fall back from the sharp rise earlier this year. The US 10-year yield fell to 1.63% and the Australian 10-year yield finished the month at 1.69%. This fall back in yields contributed to positive returns for bonds over the month.
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