April global commentary: Global markets record a solid start to 2Q23

April Global Commentary

Global equity markets had a solid start to 2Q23 (MSCI World +1.8% MoM in April) with generally better-than-expected US corporate earnings from the c. 60% of S&P 500 companies that reported 1Q23 earnings during the month. Although the companies reported marginally lower earnings, in aggregate, relative to 1Q22 (-1.5% YoY), this was c. 7% ahead of expectations. Amongst the big tech counters, Microsoft (+7% MoM) rallied as earnings beat expectations on strong growth in its cloud-computing business, while Google parent, Alphabet (+4% MoM), bounced on signs of a recovery in ad sales. Facebook parent, Meta, was amongst the best-performing tech mega caps (+13% MoM), with revenues also benefitting from a digital ad spend recovery, profits boosted by good cost control (headcount -1% YoY) and US$9bn spent on share buybacks in 1Q23 with another US$42bn still available for more buybacks. Tesla (-21% MoM) bucked the trend of generally better-than-anticipated results, with margins dropping to a two-year low and announcements of further pricing markdowns as it continues to pursue a strategy of higher volumes and lower margins.

While most of the large- and mega-cap banks delivered reassuring earnings that settled investor fears, First Republic Bank was the latest mid-cap US regional bank to become a casualty of the banking mini-crisis. It reported earnings that included details of a 41% YoY drop in 1Q23 deposits and a plan to shed 25% of employees and pursue “strategic options”. The share halved the day after results, and its assets were ultimately taken over by JP Morgan in a US Fed-brokered rescue deal over month end.

Emerging markets (EMs) were dragged lower by Chinese stocks in April (MSCI EM -1.1% MoM), particularly those with offshore listings. Baidu (-20% MoM), Alibaba (-17% MoM), and Tencent (-11% MoM) were amongst the big losers in April, with the latter two hindered by announcements that key shareholders, Soft Bank and Prosus, are selling down a portion of their stakes.

Slowing US tax payments brought forward the prospect of the US government hitting its borrowing limit as soon as June, with Treasury Secretary Janet Yellen warning of catastrophic consequences if political parties are unable to reach an agreement on raising the borrowing limit. Despite this, US 10-year government bond yields were largely unchanged.

Oil started the month strongly, rallying on a surprise announcement of supply cuts by OPEC before reversing gains on the prospect of weakening demand from slowing economic activity. Industrial metals were generally weaker (iron ore -12% MoM), while gold eked out a small gain (+1.1% MoM). The US dollar was weaker against the euro and British pound but stronger against the Japanese yen, where uncertainty around the way forward for Japanese monetary policy weighed on that currency.

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