Market Review – April 2024

US stocks got off to a weak start in the second quarter and posted losses of 2.6% and 2.4% on the S&P500 and Nasdaq composite indexes, with Meta’s earnings sending the magnificent seven constituent tumbling on weaker than anticipated revenue guidance.

The Stoxx Europe 600 index missed the mark and recorded losses of 0.05% while the standout was the UK FTSE 100 which hit a fresh record high with gains of 2.67% for the month.

In Asia, Japanese markets couldn’t escape the equity slump with the Nikkei 225 down 3.51% after a stellar first quarter. Bucking the downward trend, Chinese equities managed to record gains as investors focused on signs of economic improvement in the region. The Shanghai Composite advanced by 1.03% while the Hang Seng Index was up 4.85%, welcome relief for investors in Hong Kong after a dismal 2023. 

The benchmark 10-year Treasury yield climbed 4.8 basis points to 4.702%, while the rate on the 2-year Treasury briefly topped 5% and slipped back on a few occasions. The yields on both notes hit their highest levels since November after the first quarter GDP report released this month showed slowing growth and rising consumer prices.

The GDP report showed growth of 1.6%, missing expectations and at its weakest level in nearly two years. Along with the downbeat growth rate for the quarter, the report showed consumer prices increased at a 3.5% pace, well above the previous quarter’s 1.8% advance. The weak growth figures this quarter are a sign that higher interest rates may be finally impacting the economy, after a long period of resilience buoyed by elevated consumer spending and a strong labor market. The IMF’s GDP forecast from January projected a slowdown in US economic growth. However, this has now been revised upwards to outgrow its developed market peers.

Concerns over persistent inflation further jolted the markets into doubting more than one U.S. interest rate cut this year, even with the economy slowing and Fed policymakers indicating as many as three only last month. Nonetheless, the economy appears to be showing signs of increasing strength in manufacturing, with the ISM’s manufacturing purchasing managers’ index moving back into expansionary territory for the first time since September 2022, rising from 47.8 in February to 50.3 in March, above market expectations.

Compared to last year’s forecasts, US interest rate projections show projected rates have been volatile, but currently, investors have scaled back expectations for rate cuts significantly, with only a quarter percentage point rate cut in 2024.

Market update

Japanese equities were mostly low for the month with ongoing unease over the number of rate cuts from the Federal Reserve. The Bank of Japan (BoJ) left its policy rate unchanged at its Policy Board meeting on 26 April, maintaining the uncollateralized overnight call rate between 0.0% and 0.1%.

Chinese inflation data underwhelmed, with the CPI seeing just a 0.1% annualised increase in March, while the PPI logged its eighteenth consecutive month in deflation. Adding further doubts to the economic revival; exports and imports both saw declines to reverse gains seen in the first two months of the year.

The headline eurozone inflation rate declined by more than expected, coming in at 2.4% in March, while core inflation also dropped, raising hopes of the European Central Bank cutting rates at the next policy meeting in June, provided inflation data continued to ease. When questioned on whether the hotter-than-expected US inflation data will sway its policy decision ECB president Christine Lagarde stated that “we are data-dependent, not Fed-dependent”.

UK gross domestic product grew by 0.1% month-on-month in February, in line with expectations although slightly lower than January’s upwardly revised 0.3% growth, suggesting the UK economy has likely expanded in Q1, and the technical recession may have ended in Q4 2023. The increase was fueled by a 1.2% expansion in manufacturing; however, the services sector grew just 0.1% and construction dropped 1.9%.
Bitcoin completed its fourth ‘halving’ this month. The price of bitcoin was unsurprisingly volatile leading up to the halving, but investors anticipate gains in the coming months as history shows strong performance in the aftermath of previous halvings. The Bitcoin halving event occurs every four years and sees rewards for mining Bitcoin cut in half, counteracting inflation, and increasing scarcity as it will take longer before the total maximum supply of 21 million Bitcoin has been completely mined.

Copper prices have risen over 10% this year. The metal is integral to renewable energy-related manufacturing and is regarded by some as a proxy for economic wellbeing.

Market update Oil

A stronger US dollar towards the month end weighed on oil. A rising U.S. currency makes dollar-denominated oil more expensive for holders of other currencies, dampening demand. Oil prices slipped further today after Israel-Hamas ceasefire talks in Cairo helped calm market fears of an expanding conflict in the Middle East, while worries about the outlook for U.S. interest rates dragged on the market, gold prices also retreated 1%.

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The views and opinions expressed should not be construed as investment or financial advice. The information contained is for educational purposes only.

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