Overall Market Summary:
Global stock markets experienced mixed performance in April. Developed market equities declined as the prospect of US interest rate cuts appeared more distant. Bonds also faced pressure. Conversely, emerging market equities outperformed developed markets, and commodities saw positive returns.
United States:
US equities fell in April as higher-than-expected inflation dampened hopes for near-term interest rate cuts. Real estate and information technology, sectors most sensitive to interest rate changes, were the weakest performers. Utilities were the top performers in the S&P 500 index.
The consumer price index (CPI) for March rose by 0.4% month-on-month, pushing annual inflation to 3.5%, up from 3.2% in February. The Federal Reserve's preferred inflation measure, personal consumption expenditure, also increased to 2.7% in March. Labor costs showed acceleration, and GDP growth was weaker than expected, with the US economy expanding at an annualized rate of 1.6% in Q1, down from 3.4% in Q4 2023.
Despite the rise in inflation and a strong jobs market, investors pushed back their expected timeline for a Fed interest rate cut. A June cut now appears unlikely, with the number of anticipated rate cuts in 2024 dropping from around six to just one or two.
Europe:
Eurozone shares weakened in April as the likelihood of US rate cuts receded. Information technology and consumer discretionary sectors were the weakest performers, while energy and real estate sectors performed well.
While US rate cuts seem less likely, local economic data suggested a June interest rate cut from the European Central Bank (ECB) is still possible. A flash estimate by Eurostat indicated that eurozone inflation remained stable at 2.4% in April.
The eurozone economy grew in Q1, with GDP expanding by 0.3% quarter-on-quarter, following a -0.1% decline in Q4 2023. The German economy rebounded with 0.2% growth after a -0.5% decline in Q4.
Forward-looking data showed positive signs, with the HCOB flash composite purchasing managers' index (PMI) reaching an 11-month high of 51.4 in April. A PMI reading above 50 indicates growth.
United Kingdom:
UK equities outperformed in April as performance trends diversified away from technology-heavy markets like the US. The UK's strong weighting in financials and resources sectors, which benefited from broader market interest in lowly valued areas, was advantageous. Additionally, increased bid interest highlighted the UK's relatively low valuation, even as the FTSE 100 index hit a new all-time high.
Positive contributions from the healthcare sector and consumer staples, along with resilient performance in financials and resources, supported the UK's strong relative performance. Sterling's weakness versus the US dollar and a recovery in commodity prices also played a role.
Expectations for persistent global inflation benefited commodity-exposed sectors and markets like the UK. However, higher-than-expected UK inflation in March weighed on domestically focused parts of the market, delaying interest rate cuts. This was reflected in the underperformance of mid-cap equities, although UK small caps performed well.
Japan:
The Japanese equity market entered a correction phase in early April but recovered towards the end of the month due to solid earnings figures. The TOPIX index declined by -0.9% in yen terms, while the Nikkei 225, a large-cap oriented index, fell by -4.9%. The correction primarily affected large-cap and semiconductor-related stocks due to profit-taking and heightened Middle East tensions.
The Japanese yen weakened further, influenced by the strong US economy and reduced expectations for a Fed rate cut. The Bank of Japan (BoJ) did not tighten policy at its April meeting, triggering speculative currency market moves. The yen reached 160 against the US dollar, prompting government concern about inflationary pressures and potential delays in real-term wage growth.
Despite these challenges, the spring wage negotiation (Shunto) concluded with wage growth exceeding 5%, and an increase in visitors supported consumption.
Asia (excluding Japan):
Asia ex Japan equities achieved modest growth in April, with share price gains in mainland China, Hong Kong, and Singapore offsetting declines in Indonesia, South Korea, and the Philippines. Mainland China was the strongest market in the MSCI AC Asia ex Japan Index due to improved sentiment, though concerns about the country's recovery, real estate crisis, and unemployment persisted.
Hong Kong's share prices rose, driven by foreign investors seeking lower-valued, high-dividend stocks with exposure to mainland China. Positive economic data boosted investor sentiment in Singapore.
Indonesia was the worst-performing market due to a surprise rate hike aimed at supporting the currency and controlling inflation. South Korean stocks also declined amid global economic and inflation concerns.
Emerging Markets:
Emerging market equities posted a small positive return, outperforming developed markets, driven by a rebound in China. In the developed world, higher-than-expected US inflation reinforced expectations of prolonged higher interest rates.
Turkey was the top performer, benefiting from strong foreign inflows and President Erdogan's indication of orthodox economic policy post-election. China followed, helped by a strong Q1 GDP result and evidence of policy support boosting manufacturing and infrastructure investment. Hungary, Peru, South Africa, and Czech Republic also outperformed. India continued to perform strongly during its national elections.
Chile and Thailand posted negative returns, with Taiwan lagging due to foreign equity selling. Middle Eastern markets, including Saudi Arabia, Qatar, UAE, and Kuwait, saw losses due to regional geopolitical tensions. Latin American markets of Mexico, Brazil, and Colombia also delivered negative returns due to currency depreciation against the dollar. Brazil and Korea were affected by delayed expectations for US rate cuts, while Egypt was the worst performer.
Global Bonds:
The US led the global government bond sell-off in April, with the 10-year Treasury yield reaching 4.70% as the market adopted a higher-for-longer interest rate narrative. Credit markets performed relatively well despite the downturn in global equities. Investment grade spreads tightened further in US and European credit markets, supported by lower primary issuance.
High yield (HY) credit spreads tightened in Europe and outperformed the US in both spread and total return. HY bonds are more speculative compared to investment grade (IG) bonds, which are the highest quality as determined by a credit rating agency.
Inflation remained a key focus in April, with the US inflation report for March showing a third consecutive above-consensus core CPI print, delaying rate cut expectations. ECB left interest rates unchanged, with President Christine Lagarde signaling June as a possible time to ease monetary policy. European government bond yields rose, with the German 10-year Bund yield reaching 2.58%. Non-core markets outperformed, boosted by stable sovereign ratings for France.
BoE did not meet in April, but Governor Andrew Bailey noted progress on inflation. However, the latest inflation release for March was higher than expected. The UK 10-year gilt yield rose to 4.35%.
In forex markets, the US dollar strengthened due to the higher-for-longer rates narrative, while the Japanese yen reached a thirty-year low against the dollar.
Convertible bonds provided some protection amid falling equity markets. The FTSE Global Focus convertible index ended the month with a -2.4% loss in US dollar hedged terms. The primary market for convertibles remained active, with April issuance slightly below average. Japan accounted for over half of the new issuance.