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Global market commentary – April 2019

03 May 2019

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by Peter Little, Fund Management

In March it was cautious central bankers that helped push US stocks to their best quarter (1Q19) in almost a decade, while company results took the baton in April, nudging the S&P 500 Index 4% higher as it headed towards a 20% YTD gain (+18%). Just over half of S&P 500 companies reported 1Q19 earnings in April, with aggregate earnings growth of 2.5% YoY. That was a far cry from the 23% YoY earnings growth from S&P 500 companies in 1Q18, but the bulk of that growth was driven by the US tax cuts which are now firmly in the base. The moderate 1Q19 positive earnings growth actually beat expectations, with analysts going into the announcements expecting earnings to decline slightly on a YoY basis. JP Morgan was the first mega-cap to deliver results, which surprised positively, with trading a key source of its outperformance. That was a catalyst to kickstart a rally in European banks as investors looked for corners of the market that hadn’t already run hard. Another neglected corner of the market was German automakers but as data out of China, a key trading partner for Germany, showed credit growing at the fastest level in over a year, investors were enticed back to the sector, which helped drive the DAX Index 7.1% higher for April.

Yields recovered slightly from the lower levels central bankers had driven them to in March and that, along with the strong results, helped the S&P 500 financial sector end April top of the pile – up 8% as it caught up with other sectors following a disappointing 1Q19 performance.

Developed market equities (+3.5%) comfortably outperformed emerging markets (+2.1%) for the month as Chinese markets took a breather (the Shanghai Composite was down 0.4% in April) following a stellar start to the year (+24% in 1Q19). Brazil lost momentum and Indian markets seemed to be on hold as their protracted electoral process plays out. Meanwhile, Turkish markets continued to struggle with the lira comfortably the worst-performing currency for the month, down 6.7% against the US dollar. This, as efforts to recapitalise banks and tighten monetary policy were offset by volatility in foreign currency reserves, which their central bank struggled to explain.

Oil also recorded robust gains (+6.4% in April and +35% YTD) as US President Donald Trump, indicated that he won’t renew Iran’s sanction waivers once they expire in May.

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