It was a down week for most major asset classes for most of the week as, ironically perhaps, strong economic data (outside of China) with largely benign inflation trends, punctured hopes of near-term rate cuts.

Australian equities fell 2% for the week, dragged down by sharp losses in materials (-4.1%) and real estate (-3.6%) stocks. The material sector was impacted by a 6.4% fall in iron ore prices amid a disappointing GDP report from China. Meanwhile, rising bond yields put pressure on interest-rate sensitive REITs. Among the hardest hit major stocks were mid-cap cybersecurity firm Senetas Corp (-17%) and gold miner Evolution Mining (-19%). On the positive side, gains in healthcare and communications stocks provided some offset.

While global also equities also slipped 1% on a hedged basis unhedged portfolios were up 1% in unhedged terms as the Australian dollar depreciated on that weakness from China. Bright spots included gains of 4-12% at semiconductor producers like NVIDIA and Advanced Micro Devices after positive earnings results. Emerging markets were down by 1.3%, largely driven by Chinese stocks. Then in afternoon trading, after European markets had closed the US market bounced another one percent or so led by the Nasdaq and semiconductors in particular after an upbeat earnings report from Taiwan Semiconductor. This took the S&P 50o back up to record highs.

Listed property continued to look volatile with losses both locally (-3.6%) and globally (-2.7%) amid the pickup in bond yields. Infrastructure stocks were also down -2.3%. Bonds also saw moderately negative returns across the board with the Australian composite bond index and global equivalent down almost 1%, as were inflation linked bonds. High yield, mainly floating rate securities were also down half a percent or so.

In commodities, energy was a relative haven as oil prices posted moderate gains for the week even though news from the Middle East was perhaps slightly encouraging. Industrial metals broadly declined while gold slid 1.3%. Meanwhile, market-implied expectations for central bank easing were pared back slightly amid the stronger-than-expected economic readings and inflation data.

Overall, it was a risk-off week for investors as lingering uncertainties over the macroeconomic environment added to anxiety but probably more due to falling hopes of near-term rate cuts. With central banks pushing back against aggressive easing bets, the bar for a sustained market rebound may require more decisive direction on growth and inflation trends but then that would also imply higher rates. So for now the ‘muddle-through’ thesis looks intact.

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