Market Overview

Summary of world markets in April

Broadly, it was a positive month for equity markets, although sentiment grew more cautious on further troubling news from the US banking sector.  The US market lagged the UK and Europe, while geopolitical worries weighed upon Asian and emerging market indices.  It was a difficult month for gilts, which underperformed other government bonds against a tricky economic backdrop.  Corporate bonds fared better, with credit spreads stabilising after last month’s volatility.

The Bank of England reinforced the message that the higher cost of living and elevated mortgage rates will continue to impact consumers.  Indeed, headline CPI remained in double digits and, in this regard, the UK is in a more difficult position compared to other developed economies.  Furthermore, the housing market continues to soften (the risks of which are not lost on policymakers), and rents are increasing.  In short, the outlook continues to be very challenging for the UK economy and certainly tricky to navigate from a policy point of view.

The IMF issued a tepid forecast of 3% global economic growth over the next five years.  Amid mixed economic data from the US, there was a growing sense that the economy was poised for a slowdown/recession, with excess savings being drawn down and households squeezed by tighter lending conditions.  Although inflation rates continued to fall from last year’s levels, US core inflation remained stubbornly high.  Tight labour markets reinforced the inflationary backdrop, although wage growth softened.  Meanwhile, in the EU, lower energy prices improved the inflation picture.  That said, a 6% pay increase for German public sector workers was a concern for the ECB in terms of its efforts to tame rising prices.  China continued its post-COVID recovery, although data releases were rather mixed, suggesting that the rebound may be fading.

Faced with a double-digit inflation rate and robust wage growth, there were expectations of further rate hikes from the Bank of England at upcoming meetings.  Ahead of the US Federal Reserve’s next policy meeting in May, markets priced in the likelihood of a 0.25% hike (which duly came), followed by a pause in rate rises.  Similarly, hawkishness from EU officials suggested further tightening to come from the ECB.  The incoming governor of the Bank of Japan maintained the policy of “yield curve control”, despite rising inflationary pressures in the country.

After the banking shocks of March, volatility subsided in April and developed markets made gains.  In local currency terms, the main US index advanced, but lagged the robust gains seen from the main European, UK and Japanese markets.  In aggregate, Asian and emerging market indices weakened, held back by China, where geopolitical worries soured sentiment. Broadly, “value” stocks outperformed their “growth” counterparts.  This was particularly helpful for the UK market, which has stronger “value” characteristics.

From the US market standpoint, it was notable that, once again, market leadership was narrow and concentrated in the mega-cap stocks.  Indeed, it was a much tougher month again for smaller-cap US stocks.  Evidence also suggests that collectively, money managers are bearish, even as headline indices continue to rise.

Earnings season got under way, with the first quarter shaping up to be better than expected (notwithstanding the fact that the bar had been set low!).  Mega-cap technology companies delivered strong results, as did banks (despite the recent wobbles), alleviating concerns about large and well-capitalised institutions.

Gilt yields rose (prices fell), with the inflation picture in the UK keeping the market under pressure.  Longer maturity bonds     weakened the most.  The gilt market underperformed other developed sovereign bond markets over the month. Broadly, corporate bonds delivered positive total returns as credit spreads stabilised after the volatility of last month.

The oil price surged after OPEC+ announced a surprise production cut.  However, by the end of the month, these gains had been given back as the commodity price fell in response to concerns about economic growth and the strength of the economic rebound in China.  For similar reasons, the copper price also weakened.

The gold price ended the month a little higher, bolstered by renewed concerns about the financial sector together with broader economic uncertainties.  Concerns that the US Treasury Department could hit its debt limits in the coming months also prompted investors to consider alternative assets such as gold.

The US dollar weakened, reflecting expectations that the US Federal Reserve’s tightening cycle is nearing an end.  A stronger sterling versus the greenback tempered the returns available from overseas portfolio allocations.