Macro views

Market Reviews - April 2019 GBP

Discover our latest round-up of market news, featuring equities and both government and corporate bonds.
May 2019

Investment Content team

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Risk Disclaimer

Past performance is not a guide to future performance. The value of investments and income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any products that may be mentioned.

UK

The FTSE All-Share Index rose 2.7% in sterling terms during April. EU leaders agreed to delay Brexit until the end of October, while giving the UK an option to depart before then should it reach a domestic political consensus on the EU withdrawal agreement. Meanwhile, Prime Minister Theresa May began cross-party talks with the Labour Party in a bid to reach a compromise on Brexit. Survey data for March suggested Brexit uncertainty had pushed the UK service sector into contraction. In contrast, survey data indicated manufacturing activity had risen strongly over March on
the back of Brexit-related stockpiling. UK inflation was unchanged in March, at 1.9%, despite robust wage growth. In terms of sectors, leisure goods (31.0%) and industrial engineering (11.2%) led, while tobacco (-6.6%) and pharmaceuticals & biotechnology (-4.0%) lagged.

Risk Disclaimer

Past performance is not a guide to future performance. The value of investments and income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any products that may be mentioned.

Europe

The FTSE World Europe ex-UK Index gained 4.0% in sterling terms over the month. First-quarter eurozone growth beat forecasts, rising 0.4% versus 0.2% in the prior quarter. Italy’s economy emerged from recession, supported by exports growth. Nevertheless, monthly survey data was generally lacklustre, raising doubts that the improvement for the eurozone economy would be continued in the second quarter. The European Commission’s gauge of industrial confidence for April slid to its lowest level in five years. Survey data also suggested that eurozone manufacturing activity had contracted further in April following the sizeable decline registered in March. Germany reduced its 2019 economic growth estimate to 0.5%, down from its previous forecast of 1%, citing a deterioration in conditions across the global economy. EU leaders agreed to delay Brexit until the end of October.

US

The FTSE All-World North America Index advanced 4.0% in sterling terms over April. US first-quarter economic growth surpassed expectations at an annualised 3.2% compared with the prior quarter’s 2.2% expansion. Much of the growth was driven by increases in trade and inventories, while consumer activity and investment slowed. US jobs growth picked up strongly in March following the relatively weak gains recorded in the prior month. In addition, retail sales rose at their fastest pace in 18 months in March. Nevertheless, US industrial output fell in March, disappointing forecasts. Survey data also suggested US consumer sentiment declined in April as the impact of earlier tax cuts continued to diminish. Core US inflation remained subdued, at 1.6% year on year for March, unchanged from the prior month.

Japan

The FTSE Japan Index returned 1.2% in sterling terms during April, underperforming the global average. Japanese economic data released during the month was mostly weak. Industrial production for March contracted at its fastest pace in approximately four years. Against continuing global trade tensions, exports slumped 2.4% year on year in March, worse than the 1.2% decline reported in the prior month, with particular weakness in shipments to Asian countries. Japanese core machinery orders fell 5.5% year on year in February, disappointing expectations. The Bank of Japan’s quarterly consumer sentiment gauge fell to its lowest level in around three years. Nevertheless, retail sales rose 1% year on year over the same month, beating economists’ forecasts and improving on the 0.4% growth registered in the prior month.

Emerging Markets

The FTSE All-World Emerging Index returned 2.3% in sterling terms over April, though trailed the global average. Economic news was mixed, with survey data suggesting Chinese factory output rose behind expectations in April. South Africa (7.6%) led performance over the month amid hopes that the ruling African National Congress party would poll strongly in the forthcoming May election, further consolidating the position of business friendly President Cyril Ramaphosa. Elsewhere, Greece (7.0%) was buoyed by an improving domestic economy. Mexico (5.1%) also performed well as domestic political risk appeared to abate and the government pledged to standby its budget targets. On the negative side, Turkey (-3.1%) underperformed amid worries over its domestic economic outlook and further falls in the lira. Brazil (-0.7%) suffered from weak economic data, as well as concerns over potential obstacles to ratifying pension reforms.

Asia Pacific ex Japan

The FTSE World Asia Pacific ex Japan Index rose 1.6% in sterling terms during April, underperforming the global average. Chinese economic data was mixed, with survey data suggesting Chinese factory output rose behind expectations in April. China’s construction activity gauge for April remained robust, albeit lower versus the prior month. Developed Asia Pacific markets such as Singapore (5.9%) and Taiwan (3.9%) performed strongly, though Australia (1.2%) and New Zealand (0.0%) lagged. Returns for sterling investors in Korean equities (0.3%) were held back by currency weakness amid worries over the country’s economy. Malaysia (-1.0%) was the biggest underperformer given foreign investor outflows and concerns over the economic outlook there. The US and China claimed ongoing talks aimed at ending their trade dispute had made positive progress, though uncertainty lingered over the enforcement mechanism for a deal.

Government Bonds

Global government bond yields were little changed over April. While US economic data released during the month was largely positive, core US inflation remained subdued, at 1.6% year on year for March, unchanged from the prior month. US jobs growth picked up strongly in March following the relatively weak gains recorded for February. Monthly eurozone economic data was mixed, though in common with the US, first-quarter growth surpassed market expectations. Italy’s economy was shown to have emerged from recession in the quarter, supported by exports growth. Eurozone inflation was similarly muted, with core eurozone inflation at just 0.8% for March, and with headline inflation having dipped to 1.4%, down from 1.5% in the prior month. Germany cut its 2019 economic growth estimate to 0.5%, down from its previous forecast of 1%.

Corporate Bonds

Global corporate bonds outperformed the government bond market over the month. Positive global risk appetite and low volatility provided a constructive backdrop for the credit market. US economic data was largely positive, though core US inflation remained subdued, at 1.6% year on year for March, unchanged from the prior month. In common with the US, first-quarter eurozone growth surpassed market expectations. Eurozone inflation was similarly muted, with core eurozone inflation at just 0.8% for March, and with headline inflation having dipped to 1.4%, down from 1.5% in the prior month. Japanese technology firm SoftBank unveiled a ¥500bn ($4.48bn) bond offering to help fund its investment strategy. Saudi Arabia state-owned oil producer Saudi Aramco issued $12bn of bonds, its market debut as part of the country’s push to open up the Saudi economy to global investors.
 
*Source: Lipper to 30 April 2019, total return. Indices rebased to zero at 29 March 2019.

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