Market Commentary April 2014
Global equity markets were broadly flat over the month despite various adverse market events. The MSCI World index, representing global stock markets, reached an all-time high in March with global market capitalisation standing at $65.3 trillion.
Tension between Russia and Crimea dominated the headlines, negatively impacting Russian markets. Japanese markets recovered from steep losses seen at the beginning of the month as investors became anxious over the upcoming consumption tax increase. Fixed interest markets were mild, amid mixed macroeconomic data.
US equity markets ended slightly higher with little variation over the month. The US Federal Reserve announced a further $10 billion a month reduction in monetary easing at the meeting in March. This was widely expected by market participants. The unemployment rate was announced at 6.7% in February, increasing from 6.6%. Existing home sales fell, encouraged by severe weather and worsening affordability. Credit rating’s agency Fitch upgraded the outlook on the US from ‘negative’ to ‘stable’ after the US averted its debt ceiling.
European equity markets were little changed, as well as no change in monetary policy. The European Central Bank announced no change in interest rates or quantitative easing, despite the IMF encouraging additional liquidity. Eurozone fourth quarter GDP was confirmed at 0.3% in line with expectations. CPI inflation fell to 0.5% in March, the lowest level since November 2009 and well under the target of 2% inflation. Recent business and consumer surveys suggest an improving positive economic outlook despite current affairs in Crimea. Monthly labour figures show that the number of those unemployed has continued to fall, albeit at a low rate.
UK equity markets underperformed with negative returns over the month. Fourth quarter GDP was confirmed at 0.7%, in line with estimates. The 2014 growth forecast was upgraded in its largest upward revision between budgets in 30 years. The Bank of England maintained interest rates and the current monetary easing program was left unchanged. Unemployment was announced at 7.2% in January, marginally higher than expected. UK CPI inflation fell to 1.7% in February primarily due to lower transport costs, housing & household services and clothing & footwear.
Asian equity markets revealed fair dispersion between regions with strong returns in India, and underperformance in China. China registered a trade deficit of $23 billion in February, compared to a surplus of $33 billion the previous month, marking the first trade deficit in 11 months. Chinese retail sales recorded their lowest rate since 2004, while industrial production was posted at levels last seen in 2008. New Zealand was the first G10 country to raise interest rates since the financial crisis as the central bank raised interest rates to 2.75% from 2.5%. Japanese equity market returns ended flat after a volatile month. Fourth quarter GDP was confirmed at 0.7%, lower than initial forecasts.
Emerging market equities outperformed their developed counterparts with Latin America posting the strongest gains. Brazilian markets were boosted by strong economic data and a positive political outlook. Interest rates were cut in Chile to 4% from 4.25% to support economic growth. Investors were closely tied to events in Crimea where Vladimir Putin signed a treaty accepting Crimea as a sovereign state. President Obama confirmed there would be visa bans and asset freezes in Russia, as well as sanctions against senior officials. World leaders later suspended Russia from the G8 until the country ‘changes its course’. Credit rating’s agency Standard & Poor’s downgraded the outlook on Russia from stable to negative.
Fixed interest markets were mild with corporate bonds marginally outperforming government bonds. In the US, yields rose alongside the decision by the Federal Reserve to further reduce its quantitative easing program. Investors have recently shown strong demand global high yielding bonds and many recent new issues have been oversubscribed.