Equity markets fell for the second consecutive month as higher bond yields placed pressure on market valuations. Despite a stronger energy sector, the Australian market fell by 2.8% while the US market declined by 4.8% weighed down by higher US Treasury yields and growing concern about the burgeoning US federal deficit. Other global markets fared similarly with European markets down 2.5% while China continued its recent decline losing a further 2.8%. The outlook for the Chinese economy continues to deteriorate as the critical property and infrastructure sectors struggle under the burden of excessive debt.
US 10-year bond yields rose by 48 basis points with the Australian equivalent rising by 46 basis points to both finish at 4.5%, a level not seen since 2008. While Central Banks have paused their interest rate tightening schedules for now, strong labour markets and catch-up wage claims to restore real wage levels are building pipeline inflation pressures, meaning that further interest rate rises will be necessary.
Commodity markets were generally stronger, particularly the oil price which was up 6.2%, gold advanced 5.1% and iron ore finished 10.4% higher for the month. This would normally be positive for the AUD however it was basically flat against a stronger USD to finish around 64 cents.