Market Opinion - April 2024

Market Opinion - April 2024

Global equity markets experienced a mixed month in April, with notable declines in European and US equities, while the UK stock market reached new highs. Meanwhile, Asian markets faced geopolitical risks and concerns about US inflation, leading to varied performance across the region.

European equity markets saw their first monthly decline of the year as robust inflation and muted GDP growth revived stagflation fears. Gains in the energy sector, driven by Middle East tensions, buoyed oil prices. The Euro area emerged from recession in the first quarter after five quarters of stagnation, with real GDP growing by 0.3%. Spain and Portugal led with 0.7% growth, while Italy saw firm growth at 0.3%, and France and Germany at 0.2%.

Headline inflation remained unchanged at 2.4% in April, aligning with March's figures and market expectations. Both core and services inflation fell, boosting European Central Bank (ECB) confidence in achieving their target rate. Policymakers may consider starting interest rate cuts in June, based on the current outlook.

The UK equity market rose in April, with the FTSE 100 index hitting a new all-time high. A weaker pound, eased Middle East tensions, and hopes for rate cuts contributed to this performance. The UK economy grew by 0.1% in February, following a revised 0.3% rise in January, with widespread sectoral growth reported by the Office for National Statistics (ONS). However, the International Monetary Fund (IMF) downgraded overall UK growth for 2024 to 0.5% from 0.6%.

UK inflation fell to 3.2% in March, dipping below US inflation rates for the first time since March 2022. Swaps market traders now anticipate that the Bank of England (BoE) will start cutting interest rates in the second half of the year, with potential cuts in September or November.

US equity markets fell in April, with the S&P 500 posting losses after five consecutive months of gains. Most sectors saw negative returns, with real estate, information technology, and healthcare trailing, while utility stocks rose. Federal Reserve (Fed) Chair Jerome Powell suggested that inflation might take 'longer than expected' to reach the 2% target, delaying potential interest rate cuts and dampening investor sentiment.

Despite earlier resilience, the US labor market showed signs of cooling. Unemployment fell slightly from 3.9% to 3.8%, and preliminary first-quarter GDP growth came in at 1.6%, below the expected 2.5%.

Asia Pacific equities fell back in April, with Japan and South Korea experiencing the largest declines. Information technology and consumer discretionary sectors faced losses, although Chinese and Hong Kong markets rebounded. Korean equity markets declined, led by the information technology sector, amid diminishing expectations of multiple US rate cuts. The Bank of Korea maintained its base rate at 3.5%, citing the need for inflation progress before making rate adjustments. Taiwanese equities, particularly in information technology, also declined, with the Central Bank unexpectedly raising its key discount rate to 2% due to persistent inflationary pressures.

Emerging markets had a positive month, progressing despite heightened geopolitical risks and continued US inflation pressures. Gains were observed across Asian markets, while Europe, the Middle East, and Africa (EMEA) remained flat, and Latin America saw declines. China and India were the leading markets in the emerging markets region. Eastern European equity markets edged up, while Gulf markets dipped slightly as oil prices fell. In Asia, Indian equities surged, particularly in the financial sector.

The growing sense that the US Federal Reserve will cut interest rates less than previously anticipated weighed on bond markets in April. Corporate bond markets saw investment grade (IG) bonds, which are sensitive to interest rate changes, underperform high yield bonds. Dollar and sterling IG bonds weakened the most, down 2.33% and 2.04%, respectively, while euro IG returned -0.84%. In the high yield corporate market, dollar bonds returned -1.00%, while European currency bonds remained flat at -0.03%.

In summary, April presented a mixed bag for global equity markets, with varying performances across regions and sectors. Investors remain cautious amid ongoing inflation concerns and geopolitical risks, keeping a close eye on central bank policies and economic indicators.