At a glance
Global stocks in April rose for the first time in three months after US companies posted better-than-expected earnings for the March quarter. China moved to avert a trade war with the US, higher commodity prices boosted material and energy stocks, and North Korea and South Korea started talks that could lead to a peace treaty. A decline in the Australian dollar boosted gains for those who have unhedged investments in global equities. During the month, nine of the eleven sectors rose in US-dollar terms. Energy (+9.4%) and utilities (+2.6%) rose most while consumer staples (-2.0%) was the worst performer. The Morgan Stanley Capital International (MSCI) World Index rose 1.1% in US dollars and 2.8% in Australian currency.
Australian stocks rose for the second month in three after energy and materials stocks benefited from commodity prices being bolstered by a growing global economy. Aluminium prices surged 14% on supply concerns, to help the LME Metals Index to advance 3%, while US benchmark oil jumped 5.6% and iron ore (Australian to China export prices) rose 2.3%. Economic news released over the month showed consumer and business optimism are declining. The Westpac Melbourne Institute Index of Consumer Sentiment index fell 0.6% to 102.4 in April, a five-month low and where 100 is the neutral level. The NAB Monthly Business Survey showed business conditions fell 6 points from February’s (revised) record high to +14 in March. Better news was that retail sales rose 0.6% in February, the balance of trade was a surplus of $825 million for the same month, and inflation was held to 1.9% in the 12 months to March, just below the Reserve Bank of Australia’s 2% to 3% target band. The Reserve Bank’s policy-setting board kept the cash rate at 1.5% and the S&P 200 Accumulation Index rose 3.9%.
US stocks rose for the first time in three months after companies beat expectations on earnings and China announced concessions that appeared to defuse an imminent threat of US trade sanctions, though higher bond yields and hesitant news on the economy limited gains. Financial research and data company FactSet said that 79% of companies that had reported earnings by April 27 announced earnings per share above estimates – a ‘beat rate’ that, if it were to hold for all companies, would be the highest since FactSet began tracking this measure in 2008. Concerns about a US-China trade war eased after President Donald Trump tweeted he was “very thankful” after China’s President Xi Jinping promised to open China’s economy, allow foreign ownership of auto factories and urged “dialogue rather than confrontation”. Over the month, economic reports hinted that US growth is cooling while inflation is rising. Reports showed US economic growth slowed to an annualised rate of 2.3% in the first quarter from a comparable 2.9% in the prior three months. The Federal Reserve’s preferred inflation gauge, the Commerce Department’s price index for personal consumption expenditure, hit the central bank’s inflation target when it rose 2% for the 12 months to March. Concerns that faster inflation might prompt the Fed to raise rates more than expected boosted US two-year and 10-year bond yields by 22 and 21 basis points respectively. The S&P 500 Index rose 0.3%.
European stocks rose for the first time in three months on eased concerns about a global trade war, even though reports indicated the Eurozone economy is slowing. Industrial production for the euro area fell 0.8% in February, to follow a decline of 0.6% in January, while retail sales only rose 0.1% in February. Of special concern was that industrial production and retail sales in Germany fell for the third consecutive month in February. Germany’s Macroeconomic Policy Institute said its barometer of production, confidence and other signals rated the probability of a recession occurring in Germany at 32% compared with only 7% in March – meaning the indicator is ‘flashing orange’ for the first time since March 2016. The Euro Stoxx 50 Index gained 5.2% while the UK’s FTSE 100 Index rose 6.4%, its first gain in four months.
In Asia, the first inter-Korea summit in 11 years eased angst that efforts to limit North Korea’s nuclear capabilities could lead to conflict. In Japan, stocks rose for the first time in three months as the Bank of Japan abandoned attempts to forecast when inflation might reach the central bank’s 2% target, which suggested the Bank of Japan might stick with its ultra-loose monetary policy for some time yet. Chinese stocks, however, declined as concerns about a slowing economy prompted the People’s Bank of China to cut reserve requirements for most banks by 1 percentage point. During the month, a report showed the economy expanded 6.8% in the year to March, the same speed as for the 12 months to December. Japan’s Nikkei 225 Index added 4.7% while China’s CSI 300 Index lost 3.6%, its third consecutive decline.
Movement in benchmark indices are in local currency unless stated otherwise. As is common practice, all indices mentioned are price indices apart from the MSCI indices and the S&P 200 Accumulation Index.
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Sources: J.P.Morgan, FactSet, Bloomberg and national statistical including the Australian Bureau of Statistics, eurostat, the US Department of Commerce and the US Department of Labor.
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