The S&P/ASX 200 Accumulation Index returned 1.5% during the month. Australian equities underperformed key offshore markets as a strong reporting season was offset by a surge in 10-year bond yields late in the month on the back of inflationary expectations. The global roll-out of COVID-19 vaccines and US fiscal stimulus saw the reflation trade take hold.
Markets have become choppy, particularly toward month-end, and we expect more of the same given the nearly unrelenting strong run in risk assets since late March 2020 that gained fresh momentum early in November following the US elections.
Asian stocks brushed aside uncertainties posed by new COVID-19 variants and climbed higher in January. The MSCI AC Asia ex Japan Index rose 4.1% in US dollar (USD) terms over the month.
The US Treasury (UST) yield curve steepened in January. The prospect of increased federal spending in the US prompted a sharp upward move in UST yields at the start of the year.
The Australian bond market (as measured by the Bloomberg AusBond Composite 0+ Yr Index) returned -0.42% over the month. The yield curve steepened as 3-year government bond yields ended the month flat at 0.11%, while 10-year government bond yields rose by 16 basis points (bps) to 1.13%. Short-term bank bill rates were unchanged.
The S&P/ASX 200 Accumulation Index returned 0.3% during the month. Australian equities outperformed most key offshore markets during the month as equity markets saw a pull-back late in the month. COVID-19 cases passed the 100 million mark globally and many countries continued to struggle with COVID-19 variant strains and vaccine supply issues.
Worldwide, 2020 was unequivocally dreadful; a year of loss, pain, anxiety and separation that found no worthy adversary in technology or social privilege.
The Australian bond market (as measured by the Bloomberg AusBond Composite 0+ Yr Index) returned -0.27% over the month. The yield curve steepened as 3-year government bond yields ended the month flat at 0.11%, while 10-year government bond yields rose by 7 basis points (bps) to 0.97%. Short-term bank bill rates were largely unchanged.
The S&P/ASX 200 Accumulation Index returned 1.2% during the month. Australian equities lagged key offshore markets during the month. Despite COVID-19 cases rising exponentially in the US and Europe, the start of the vaccine roll-out and further certainty regarding the US election result saw equities move higher.
2020 will undoubtedly be remembered as the year of the pandemic. While in financial market terms it is now tempting to think of COVID-19 as old news, the virus still presents substantial risks to the economic outlook.