MARKET COMMENTARY – APRIL 2019

Global stock markets continued to make gains in March, building on the strong recoveries seen since the start of the New Year.  Investors’ concerns have been eased as optimism of progress continues over US-China trade negotiations, as a result of the more patient stance from the US Federal Reserve to further tightening of monetary policy together and the implementation of Chinese stimulus measures.

The S&P 500 (US) has been the strongest major developed market in 2019.  Headlines have been dominated by the US-China trade talks and although there has been an impasse on issues surrounding tariffs, intellectual property and Chinese state-led subsidies for technology companies, there was enough progress made to avert an increase in tariffs scheduled for the 1 March which helped support markets, though there is still uncertainty as to how the negotiations will develop.  US economic data has remained reasonably strong with unemployment low by historical standards and wage growth rising, in conjunction with lower core inflation primarily due to weaker oil prices.  This has been positive for the consumer and should continue to support economic growth. The S&P 500 produced a +11.34% total return in local currency terms year-to-date (to 4 April 2019).

UK equities continue to be impacted by uncertainty concerning ongoing Brexit negotiations but have seen recovery so far this year.  Weakness from more economically sensitive areas including banks, tobacco and mining was a feature of the final quarter of 2018, these sectors and the market as a whole have seen a meaningful rally as the prospect of a disorderly exit has seemingly receded, although cannot be fully discounted.  Sterling continues to act as a barometer for the state of the negotiations. The UK economy is supported by a strong labour market which has aided in keeping growth positive in spite of weaker consumer confidence and business investment.  Due to the uncertainties surrounding Brexit negotiations and mixed economic data, the Bank of England Monetary Policy Committee opted not to increase interest rates in their meeting of 20 March 2019.

In 2018 emerging market equities were weighed down by fears of a slowdown in the pace of Chinese economic and credit growth, the vulnerability of some economies to tighter US monetary policy and concerns about the potential impact of global trade tensions.  Developing economies reliant on external funding find the tightening of US monetary policy challenging, consequently the Federal Reserve’s decision in January to leave rates unchanged, the softer rhetoric between the US and China and introduction of Chinese stimulus measures has eased pressure supporting a recovery.  Recent improvements are of course positive although these markets continue to be sensitive to a number of factors, including the slowdown in global growth.

European markets have also felt the impact of the trade war concerns and the slowdown in China’s economic growth rate has contributed to a sharp drop in factory orders and slowing growth in Germany.  The European Central Bank (ECB) has kept it’s guidance on monetary policy unchanged, with the programme of quantitative easing having halted at the end of 2018 and no further interest rate rises expected until at least next year.

Markets remain sensitive to political risk and due consideration should be given to the ongoing uncertainties at this late stage of the economic cycle.  Together with mixed economic data the economic and market outlook is less clear, nevertheless markets have demonstrated notable progress  so far in  2019.  A diversified approach and exposure to active management certainly remain appropriate for most investors.

Performance to 4 April 2019

*March 2019