Hedged and Unhedged International equities exposures varied strongly across the month of November changing 3.65% and -1.56% respectively. After moving sharply higher at the beginning of November, fears regarding higher and longer than expected inflation, news on the new COVID variant, combined with continued tapering talks coming the Federal Reserve was the catalyst in this index retracing the early gains. Higher interest rates in the US, making the USD more relatively attractive, forced the hedged index into negative territory.
The S&P/ASX All Ordinaries Index fell by 0.33% in November. Fears regarding the Omicron variant spooked markets late in the month as fears of potential complications arising from the unknown variant got priced in. A weakish economic back drop (as highlighted in last month’s update) combined with the unknown impact of this new variant has put Australian markets into caution mode heading into the end of the year.
Domestic and International Fixed Income
Australian 10-year bond yields fell on the quarter as investors bought government bonds to protect from the uncertainty present in the stock market. This meant the Australian bond index rose 2.08%, putting a slight pause in the 3-month trend of rising rates that started with the talks of central bank tapering emanating from the hawkish rhetoric within the United States.
The international bond index rose 0.78% on the month as the same economic factors drove investors to also buy longer-dated international bonds. The new variant will test the global rising rate trend that had begun as a response to higher-than-expected inflation numbers coming from both Europe and the US.
The Australian dollar may have finally found a direction as it fell from roughly 0.75 US cents to 0.71 US cents on the month as the United States dollar benefited significantly from interest rate differentials and a safe-haven trade stemming from the outlined uncertainties previously outlined in markets. This appears to be the trend that may follow through December to end the year.