Global equity markets took a step backwards in April (MSCI World -3.7% MoM) for the first time in six months as recent US economic data convinced investors that rates would need to stay higher for longer. US core inflation data were ahead of expectations for the fourth consecutive month, with the March print showing core inflation at 3.8% YoY, still well above the US Federal Reserve’s (Fed’s) 2% YoY target. Investors entered the year with expectations that the Fed would cut rates at least six times in 2024, but during 1Q24, those expectations were pared back to three cuts. The latest economic data have trimmed expectations further, with investors now anticipating just one rate cut from the Fed this year. Shifting rate expectations helped push the US government’s 10-year borrowing rate 0.5% higher for the month, leaving it at 4.7% at month end.
US 1Q24 GDP (+1.6% QoQ) came in well below expectations (2.5% QoQ), though most of the miss was a function of lower-than-expected net exports. The key driver of the US economy, the consumer, held up relatively well, with personal consumption up 2.5% QoQ, slightly below expectations, but still growing at a healthy clip. Over half of S&P 500 companies reported 1Q24 earnings in April, with aggregate earnings up 6% YoY, well ahead of expectations. Facebook parent Meta was perhaps the standout disappointment (-11% MoM), with its results accompanied by disappointing sales guidance and a pledge by CEO Mark Zuckerberg to “spend aggressively” on AI. Conversely, Google’s parent, Alphabet, saw its share price rally (+8% MoM) after releasing its latest earnings, which showed the company’s AI offering attracted clients to its cloud solutions.
Emerging market (EM) stocks (MSCI EM +0.4% MoM) fared significantly better than their developed market (DM) peers in April as momentum in Chinese shares seems to have shifted (Hang Seng China Enterprises Index +8% MoM) after three years of dismal share price performance.
Commodity prices were generally firmer in April, particularly industrial metals (Bloomberg Industrial Metals Index +13.4% MoM), with prices buoyed at least in part by new restrictions imposed on the trading of Russian aluminium, copper, and nickel, which can now no longer be used to settle trades on the London Metals Exchange, where global benchmark prices are set. The US dollar was strong in April (Dollar Index +1.7% MoM), supported by higher US rates and general risk aversion, particularly amid escalating geopolitical tensions between Israel and Iran.
