Macro views

Market Reviews - GBP (April 2020 )

Market reviews - GBP, FTSE All-Share, FTSE World Europe ex UK TR GBP, FTSE All-World North America TR GBP, FTSE Japan TR GBP, FTSE All-World Emerging TR GBP, FTSE World Asia Pacific ex Japan TR GBP
May 2020
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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 advanced 4.9% in sterling terms during April, recovering some of the sharp losses of the prior month. In mid-April, the UK government extended the country’s COVID-19 lockdown by a further three weeks, though related deaths and new infections began to slow during the second half of April. UK data showed manufacturing and services activity contracted at a record pace in April, while retail sales plunged in March as consumer confidence hit its lowest level since 2008. There was also a sharp rise in small business failures in March. Against weak economic activity and lower oil prices, UK inflation fell to 1.5% in March versus 1.7% in the prior month. In terms of sectors, leisure goods (37.8%) and industrial transportation (18.4%) outperformed, while banks (-8.6%) and nonlife insurance (-7.4%) lagged.

Risk Disclaimer

The value of investments and any income from them can go down as well as up and investors may not get back the original amount invested.

 

FTSE All-Share Total Return (TR) GBP (%)*

FTSE All-Share Total Return (TR) GBP (%)*

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 rose 4.6% in sterling terms. The eurozone’s economy contracted 3.8% in the first quarter versus the prior quarter as the COVID-19 pandemic scuppered business activity, with France and Italy entering recession. Survey data showed eurozone business activity had dropped to record lows in April against social distancing measures. However, as the month progressed, various European countries began to ease lockdown measures given falling deaths and new infections. Germany’s ZEW economic sentiment gauge showed some improvement in April versus the prior month as some local restrictions were lifted and German factories began to restart production. Eurozone finance ministers agreed a €500bn relief package, including €240bn to be made available to indebted eurozone countries through the European Stability Mechanism. Official estimates put eurozone inflation at just 0.4% in April versus 0.7% in March.

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FTSE World Europe ex UK TR GBP (%)*

FTSE World Europe ex UK TR GBP (%)*

US

The FTSE All-World North America Index gained 11.1% in sterling terms over April, rebounding from the prior month’s sell-off. Various US states outlined plans to begin reopening their economies, despite the US Centers for Disease Control and Prevention agency calling for a more cautious approach while domestic COVID-19 cases remain elevated. The Federal Reserve unveiled an extra $2.3tn of credit relief in response to the pandemic, including measures to support the high yield and municipal bond markets. Congress approved an additional $484bn in relief measures, targeting small businesses, hospitals and COVID-19 testing. US unemployment claims continued to rise steeply in April, in line with the trend witnessed in the prior month. The US economy contracted by an annualised 4.8% over the first quarter, the sharpest decline since 2008, largely reflecting the impact of social distancing measures in March.

FTSE All-World North America TR GBP (%)*

FTSE All-World North America TR GBP (%)*

Japan

The FTSE Japan Index returned 3.8% in sterling terms during April. Early in the month, the Japanese government outlined a partial lockdown in response to COVID-19, covering only certain regions. Towards month-end, however, rising numbers of cases prompted the government to extend the social distancing measures to the whole country. The Japanese government also unveiled a landmark fiscal relief package worth at least 7% of GDP, including direct payments to households. The Bank of Japan pledged to further boost its quantitative easing programme in response to the virus, buying unlimited amounts of government bonds while greatly increasing its corporate debt purchases. Japanese survey data pointed to a contraction in the domestic economy, suggesting services sector activity for April had hit a record low and manufacturing activity had fallen to its weakest level in 11 years.

FTSE Japan TR GBP (%)*

FTSE Japan TR GBP (%)*

Emerging Markets

The FTSE All-World Emerging Index returned 7.4% in sterling terms over April, recovering some of the sharp losses of the prior month. Thailand (14.2%), India (14.0%) and Chile (13.9%) benefited from the emerging market rally in April. Turkey (2.8%) was among the laggards as the lira came under pressure from growing concern over the country’s fiscal position. Such worries also held back Brazil (3.7%), together with concerns over the impact of lower oil prices. China’s economy shrank by 6.8% in the first quarter year on year, its worst quarterly result since records began. Chinese consumer spending, exports and fixed asset investment all contracted, reflecting the impact of social distancing measures and falling global demand. Chinese exports fell 6.6% in March year on year.

FTSE All-World Emerging TR GBP (%)*

FTSE All-World Emerging TR GBP (%)

Asia Pacific ex Japan

The FTSE World Asia Pacific ex Japan Index returned 9.8% in sterling terms during April, recovering most of the losses incurred in the prior month. Thailand (14.2%), Australia (14.1%) and Taiwan (12.3%) were among the best-performing markets over April, with all three countries benefiting from a slowdown in new domestic COVID-19 cases. The Reserve Bank of Australia, however, warned that Australia’s economy was likely to see its biggest contraction since the 1930s over the first half of 2020 – a 10% decline in output. Malaysia (3.9%) underperformed, with its energy sector held back by falling oil prices. The Chinese economy contracted by 6.8% in the first quarter year on year, its worst quarterly performance on record, as social distancing and plunging global demand weighed. Chinese exports were down 6.6% in March year on year.

FTSE World Asia Pacific ex Japan TR GBP (%)*

FTSE World Asia Pacific ex Japan TR GBP (%)*

 

Government Bonds

Global government bond yields fell over the month, against weak global economic data and lower inflation. Lockdowns and social distancing measures weighed on the global economy, with the US economy shrinking by an annualised 4.8% over the first quarter and the eurozone economy contracting 3.8% over the first three months of the year quarter on quarter. Consumer prices and inflation expectations were additionally pushed lower by falling oil prices. Headline US inflation fell to 1.5% in March versus 2.3% in February. Official estimates put eurozone inflation at just 0.4% in April versus 0.7% in March. Eurozone finance ministers agreed a €500bn COVID-19 relief package, including €240bn to be made available to indebted eurozone countries through the European Stability Mechanism. Italy’s 10-year bond yields rose over the quarter, with ratings agency Fitch downgrading the country’s credit rating.

Corporate Bonds

Global corporate bond spreads narrowed over April, with credit recovering some of the losses incurred in the prior month’s sell-off. Various US states outlined plans to begin reopening their economies, despite the US Centers for Disease Control and Prevention agency calling for a more cautious approach while US COVID-19cases remain elevated. Certain European countries began to ease lockdown measures given falling deaths and new infections. The Federal Reserve unveiled an extra $2.3tn of credit relief in response to the pandemic, including measures to support the high yield and municipal bond markets. Eurozone finance ministers agreed a €500bn COVID-19 relief package. Both the US and the eurozone reported significant contractions in firstquarter GDP along with falling inflation. Aircraft maker Boeing issued $25bn of debt to help sure up its finances.

 

 

*Source: Lipper to 30-Apr-20, total return. Indices rebased to zero at 31-Mar-20.

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