An Update on the Global Markets by Brooks Macdonald
Global equities made gains in April. Despite concerns about the spread of coronavirus and the recessionary effects of lockdowns on the global economy, government support and massive stimulus packages from the world’s central banks combined to boost investor sentiment. However, energy stocks sold off – West Texas Intermediate oil prices turned negative, amid the absence of demand and shortages of available storage facilities.
Global Markets
In the UK, equity markets rose during the month, recovering some of the stark losses of March. Against a backdrop of uncertainty about the duration of the lockdown – and an absence of clear leadership in government, with the prime minister recovering for much of the month – economic figures painted a picture of sharp decline. The composite purchasing managers’ index (PMI) fell from 36.0 in March to 12.9 in April, with retail sales dropping a record 5.1% in March. Meanwhile, the UK government announced that it would not request an extension to the Brexit transition period.
In the US, equity markets rose over the month, with the US government and the Federal Reserve (Fed) staying proactive by introducing additional stimulus measures. Economic data was unsurprisingly affected acutely, with first-quarter GDP down by 4.8% annualised – the worst since the 2008 financial crisis – and jobless claims rising further into the multiple millions.
European equities were also up in April, as the coronavirus appeared closer to being contained by the strict measures imposed by the worst-affected countries. The European Central Bank (ECB) maintained its €750 billion programme of asset purchases, while eurozone members agreed upon a €540 billion fiscal package to tackle the pandemic – although there was no agreement on the issuing of debt (or ‘coronabonds’) to finance further relief measures. Meanwhile, first-quarter GDP for the eurozone was down 3.8% year on year.
Japanese markets rose in April, as concerns about the pandemic were offset by the interventionist actions of the authorities. The Bank of Japan upped the ante of its stimulus during the month, by announcing that it would buy unlimited government bonds while quadrupling its corporate-debt purchasing.
Asia Pacific stocks (excluding Japan) rose over April, with continued monetary easing (particularly from the People’s Bank of China), government fiscal stimulus and a slowdown in new cases of coronavirus all boosting equity markets. However, the economic effects of coronavirus became evident, with first-quarter GDP growth contracting in China and South Korea, while Australian preliminary PMI readings for April fell to record lows.
Remaining Hopeful
Emerging market stocks recovered somewhat from the sharp falls in March. Sentiment was boosted by accommodative policy measures and growing optimism that global lockdown restrictions would be gradually lifted, with investors hopeful that economic activity will quickly recover. Latin American equities gained over the month but lagged global peers. The persistent weakness in oil prices and poor economic data negatively affected currencies, with the Mexican and Argentine pesos and the Brazilian real depreciating to all-time lows versus the US dollar.
Yields on developed-market government bonds traded in a reasonably tight range over the month, with the 10-year US Treasury yield moving from 0.60% to 0.62%. In the UK, the 10-year gilt yield was lower, ending the month at 0.25%. Meanwhile, both the ECB and the Fed loosened their eligibility criteria to include lower-rated (high-yield bonds). More broadly, there were fears that some ‘fallen angels’ will drop from investment-grade to high-yield indices.
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