After five consecutive months of gains, most major global markets, except for a few outliers, ended April in the red. Much of this was down to the ongoing presence of inflation in the US, fuelling discussions about the Fed's potential reluctance to reduce rates in the near future. Tensions in the Middle East also persisted, dampening investor confidence. However, emerging markets, particularly China, experienced a more positive trajectory, while commodities saw an upswing in performance.
Among the major US averages, the Dow Jones retreated by 5.0% (its worst monthly performance since September 2022), while the S&P 500 slid 4.2% and the tech-heavy Nasdaq lost 4.4%. All three indices snapped a five-month winning streak. Still, despite the April setback, the Dow, S&P 500, and the Nasdaq are up 0.3%, 5.6% and 4.3% YTD, respectively.
Concerns that the Federal Reserve would delay interest rate cuts until September, if not until 2025, notably impacted interest rate sensitive sectors. The real estate sector faced the most significant setback given the prospect of rates remaining elevated, while 2024’s standout IT sector also fell back. The energy sector outperformed due to heightened tensions in the Middle East, as did utility stocks.
South African stocks were also seen touching their highest levels since January along with the Rand experiencing its most significant surge of the year after a publication of a poll by Ipsos was seen as boosting the odds of a market-friendly coalition emerging from national elections on the 29th of May.
Fixed income markets also suffered from the change in rate expectations. In April alone, markets priced out one and a half rate cuts in the US this year and the timing of the first cut was pushed further out. 2-year Treasury yields rose 40 basis points (bps) to 5.0%, while 10-year Treasury yields rose 47bps to 4.7%.
US MARKETS
US first-quarter GDP painted a less optimistic picture, revealing a meagre growth rate of 1.6%, significantly below expectations and representing the slowest pace of growth in nearly two years. The markets’ unease deepened with the release of the closely monitored core Personal Consumption Expenditures Price Index (PCE), which indicated an annualised increase of 3.7% in Q1, surpassing expectations and far exceeding both the fourth quarter's 1.7% uptick and the Federal Reserve's 2% long-term inflation target.
However, US CPI inflation surprised to the upside for the fourth consecutive month, rising by 3.5%, while core inflation was unchanged at 3.8%, driven by sticky core services.
Over half of S&P 500 companies reported 1Q24 earnings in April, with aggregate earnings up 6% YoY, well ahead of expectations. Facebook parent Meta was perhaps the standout disappointment (-11% MoM), with its results accompanied by disappointing sales guidance and a pledge by CEO Mark Zuckerberg to “spend aggressively” on AI. Conversely, Google’s parent, Alphabet, saw its share price rally (+8% MoM) after releasing its latest earnings, which showed the company’s AI offering attracted clients to its cloud solutions.
EUROZONE/ UK MARKETS
In April we saw Europe exit its technical recession as the Euro area first-quarter output grew by a stronger-than-expected 0.3%, while the UK's monthly data indicated a rapid recovery from the previous year's downturn.
Eurozone inflation held steady at 2.4% y/y. Similarly, headline inflation in the UK also retreated, although concerns persist regarding the resilience of certain core components. With a less inflationary environment prevailing and the likelihood of stable yet tepid growth in both the euro area and the UK, market confidence in potential rate cuts from the European Central Bank (ECB) and the Bank of England (BoE) has strengthened relative to the Federal Reserve.
It was a good month for the UK stock market (another outlier among major markets), with the blue-chip FTSE-100 Index rising 2.4% (+5.3% YTD) and repeatedly breaking all-time highs during the month. The index reached its highest level of 8,147.03 on 29 April.
Eurozone shares however ended April weaker as the prospect of US rate cuts receded. The weakest performing sectors included information technology and consumer discretionary. Top performing sectors were energy and real estate.
EMERGING MARKETS
Emerging market equities posted a small positive return in the month, outperforming developed market peers by some margin, as a rebound from China drove relative gains. In the developed world, a higher-than-expected US inflation print reinforced expectations that interest rates may remain “higher-for-longer”.
Chinese economic indicators in March and Q1 2024 presented a mixed picture. Industrial production grew by 4.5% y/y, below expectations, while the house price index dropped by 2.2%, and retail sales increased modestly by 3.1%, missing projections. Chinese stocks also rallied, with the Shanghai Composite Index rising by 2.09% and the Hang Seng Index by 7.45% MoM (+4.2% YTD), emerging as the best-performing major index in the world and reflecting growing investor optimism about the economy.
Japanese equities retreated after five months of gains, influenced by widening interest rate differentials with other developed market nations. This trend exerted downward pressure on the yen and raised worries among investors about the potential for imported inflation to dampen domestic demand. Despite the rapid depreciation of the yen during the month, the Bank of Japan opted to keep rates unchanged at its April meeting.
LOCAL MARKETS
Following a two-month upswing, South African headline inflation softened to 5.3% in March from 5.6% in February. The rate has held its ground between 5% and 6% since September 2023. At the same time, retail sales fell by 3.2% m/m in February, compared to an increase of 1.2% recorded in the prior month.
On the local market front, the JSE All-Share Index gained +2.95% over the month, buoyed by Resources counters (Resi-10 +7.0% MoM/+6.5% YTD) who were again the best performers on the local bourse, especially gold and platinum shares, which recorded solid gains for a second consecutive month, as share prices were bolstered by their perceived safe-haven status in an uncertain global environment.
In share specific news, Anglo American Plc received an unsolicited takeover offer from BHP Group Ltd, valuing the miner at $38.9 billion, potentially creating the world's leading copper producer. Anglo's Chairman dismissed the proposal as "opportunistic," and BHP has until May 22, 2024, to make a firm offer.
In other news, Eskom, the state power utility, has forecasted that the winter will be lighter in terms of energy interruptions than during the winter of 2023, with the power utility anticipating that it can stave off higher stages of load shedding.
The rand strengthened against the US dollar (+0.5% MoM), finding itself alongside the Chilean peso as one of only two major currencies to strengthen against a generally strong US currency in April, to end the month at $/R 18.78 from 18.86.
Credits: Strategic IQ, Bloomberg, Schroeders
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