Upbeat economic data proved to be a tailwind for the majority of global equity markets in April as the reopening of numerous countries’ economies appears to be on track with vaccination programmes proving to be effective in supressing case numbers. The MSCI (developed market) World Index returned 4.7% over the period, driven primarily by the US where stimulus cheques provided to the majority of US adults has contributed to a spike in consumer spending. While MSCI’s emerging market benchmark returned 2.5%, underlying performance was more mixed, with the Brazilian market returning 6.5% on the back of surging commodity prices, whereas the Indian SENSEX index fell 1.4% as the coronavirus ravages the country.
Equity markets in the US reached uncharted territory in April, supported by robust consumer data as the Biden Administration’s stimulus measures translate into increased disposable income for the majority of US households. News that US GDP grew by an annualised 6.4% over the first quarter, combined with expectations of further acceleration prompted concern, that the economy could be overheating. Whether the inflationary effects of this overheating will prove transitionary or something more structural remains to be seen, however. In any event the S&P 500 improved by 5.3% over the month whilst the NASDAQ was up 5.4% as growth companies came back into favour.
Though trailing the US and UK in terms of their vaccine roll-out and subsequent easing of containment measures, the Eurozone vaccination programme has been gathering steam and with it forward-looking economic data has become more optimistic. April’s Purchasing Managers’ Index (PMI) for the manufacturing sector posted an all-time high of 62.9, whilst the services component topped 50 (50.5) to signal expansion in activity for the first time since August 2020. Backward-looking data was not so buoyant, however: a 1st quarter GDP print of -0.6% reflected tougher local lockdowns still in place, and signalled that the Eurozone economy was back in recession. European equity markets were nevertheless still positive over the month, with the MSCI European ex UK index climbing 2.1% in local currency terms.
In contrast to the majority of Europe, the UK’s roadmap for the re-emergence from lock down resumes as planned. An estimated 70% of the adult population is thought to now have antibodies against the virus and while the vaccination programme proceeds the Government’s guidance of an intended June relaxation of all social distancing restrictions is on target. April’s PMI data reflects the UK’s situation: the manufacturing print of 60.9 represents the steepest pace of expansion since 1994 whilst the service sector figure of 61.0 signalled the fastest expansion in 7 ½ half years. The UK equity market, as measured by the FTSE All Share, climbed 4.3%.
Inflation considerations continue to influence fixed income markets, though Federal Reserve Chairman Jerome Powell was quick to dispel expectations that a rise in interest rates in the US was imminent. This caused government bond yields in the US to fall, with the 10-year benchmark issue down 11 basis points to 1.63%. Powell’s comments were also negative for the currency, the US Dollar as measured by the DXY Index fell 2.1% in April which was positive for emerging market debt and the JP Morgan EMBIG rose 1.9% over the month.
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