Equity markets: equity markets on hold
Equity markets were characterized by limited volatility last month. As an illustration: in April, the S&P 500 had only three sessions with absolute price movements of more than 1%. Equity markets took a wait-and-see approach ahead of the Fed and ECB policy meetings, while mixed macroeconomic signals also failed to drive prices in any particular direction. Stock markets were somewhat supported by a better-than-expected earnings season in the US, thanks in part to the (big) technology names. Their share price performance is a major contributor to the stock market as a whole, meaning that share price gains are not broad-based. This raises questions among analysts about the quality of stock market performance.
On balance, stock markets were relatively flat, meaning that share prices were able to consolidate the recovery that began in late March after the period of banking stress. European stock markets performed slightly better than the other regions. The performance in euro of US equities was dragged down by a weaker dollar, which was a fortiori the case for Japanese performance due to the fall of the yen. Emerging markets underperformed. Here, the weak performance of Chinese equities stood out, which lost ground despite better-than-expected growth figures. Latin American stock markets were also weaker.
|MSCI EMU NR||1.5%||3.9%||13.9%||11.9%|
|MSCI EUROPE NR||2.5%||4.2%||11.3%||7.1%|
|MSCI USA NR||-0.4%||0.6%||5.3%||-3.1%|
|MSCI JAPAN NR||-1.2%||-1.3%||3.0%||-0.3%|
|MSCI EM. MARKETS NR||-2.7%||-6.3%||-0.6%||-10.7%|
|MSCI AC WORLD NR||-0.2%||-0.1%||5.2%||-2.5%|
|(Performances in EUR dd. 30/04/2023)||(bron: Bloomberg)|
Bond markets: limited movements
Bond yields had no clear direction in April. In both the US and Europe, 10-year bond yields initially moved somewhat higher as risk appetite from investors improved following the problems in the banking sector during March. Furthermore, the bond market was balanced by weaker economic prospects on the one hand and some price indicators pointing to stubborn inflation on the other. In addition, investors took a wait-and-see attitude ahead of the Fed and ECB policy meetings in the first week of May. This is illustrated by the evolution of yields of shorter maturity bonds, which are more in line with monetary policy expectations. After the sharp decline in March, US 2-year yields continued to hover around 4.0% in April. US 10-year bond yields hovered around 3.5% during April, while German ones moved between a range of 2.2% and 2.5%.
Euro-denominated "investment grade" corporate bond spreads were able to recover further in April from the jump in March due to the sharp rise in risk aversion among investors on the turbulence surrounding the financial sector. Investment-grade bond spreads were able to narrow back to pre-banking stress levels, while that was not yet the case for high-yield bonds.
Central banks: surprise from the Bank of Japan
The Federal Reserve and the European Central Bank were in a quiet period in April ahead of their meetings in the first week of May. For the Fed, the market is mainly looking for indications of whether the 'higher-for-longer' interest rate outlook remains confirmed, after what is likely to be the last rate hike of this cycle in early May. For the ECB, the question mainly revolves around whether or not to move to a slower pace of rate hikes, following the unprecedented series of 50- and 75-basis-point hikes since August last year.
Japan's central bank left its policy rate unchanged at -0.10%, as expected. Interestingly, however, the BOJ predicted that inflation will fall back below the 2% target by 2025. There is thus a growing likelihood that the Japanese central bank will completely bypass the cycles of interest rate hikes by central banks elsewhere in the world. In addition, the BOJ decided to keep the policy of yield curve control, while an easing or even abolition was expected, now that new chairman Ueda has taken office. YCC ensures that the 10-year bond yield remains within a range around the 0% target. The BOJ's extremely accommodative policy is thus confirmed.
|Fed funds||4.75-5.0%||+0.25%||Mar. 2023|
|ECB deposit rate||3.0%||+0.50%||Mar. 2023|
Currencies: euro strengthens in April
The euro strengthened against most currencies in April. The ECB is still fully in its cycle of tightening monetary policy, while economic activity is moving better than expected. The dollar weakened against the euro after fears of a banking crisis subsided. This allowed attention to return to the weaker US economy. The dollar fell to 1.105, its lowest level in over a year against the euro. Other dollar currencies followed the falling trend of the US dollar, with weaker commodity prices an additional negative factor.
The Japanese yen weakened significantly after the central bank maintained its accommodative monetary policy and especially as the policy of yield curve control confirmed. Against the euro, the Japanese yen reached its lowest level since 2008.
Commodities: oil and metals prices slip
Despite a weaker US dollar, industrial metal prices fell in April as macroeconomic data fueled demand concerns. In the US, for instance, first-quarter GDP growth came in lower than expected and in China, activity in the construction sector remains weak. Copper prices fell 4.4% (in USD terms). Inventories are generally low but are not being replenished due to recession fears.
Brent oil prices remained virtually unchanged over the month, meaning that the jump following the unexpected production cut by OPEC+ at the start of April was completely reversed. The oil price again fell below 80 dollar per barrel because of expected lower demand due to the global growth slowdown. In addition, it is increasingly apparent that large quantities of Russian crude are finding their way into the market.
Gold prices continued to rise in the first half of the month, reaching levels around 2040 dollar per ounce, matching the peak levels of the past three years. In the second half of the month, the gold price fell back somewhat to below 2000 dollar, due to signs of lingering high inflationary pressures which could potentially influence monetary policy ('higher for longer').
|Industrial Metals (GSCI)||438.10||-3.1%||-10.7%||-2.9%|