Your monthly appointment with the financial markets. What were the trends for equities, bonds, currencies and commodities in the past month, and what made the markets move ? You can discover the most striking evolutions in this clear and concise analysis.
1. Equity markets
The stock markets managed to end a cloudy month on a positive note. There was no single news item that dominated the headlines. As a consequence, equity rates were pushed up and down by enchanting or disappointing economical news, better or worse than expected company results, comments made by central bankers and the evolution of the commodities market. At the moment, recent figures in the United States do not yet confirm the improvement detected in the leading indicators, whereas in the euro zone the ‘hard’ figures cast a more positive light than the indicators do. The company results in the US over the first quarter show a decrease in profit and turnover. The technology sector, for instance, had to accept disappointing results (Apple, Microsoft), whilst the results published by the banking sector were not as bad as initially feared. Moderate comments of Fed-chairman Yellen had a positive influence on the market at the beginning of the month, but the unexpected status quo of the Japanese central bank pushed the markets downwards at the end of the month. As a result of this all, the euro zone was one of the best performing markets (MSCI EMU +1,2%)
, even though this performance became very tight due to the weaker USD. The Japanese market was the most negative one, but the performance in euro was boosted by the increase of the yen. In the emerging markets, the best performance could be noted on the Latin-American markets.
2. Bond markets
Both in Europe and the United States, the return on government bonds went slightly up. This cannot be seen as a market signal reflecting interest expectations, it is merely an expression of a bigger risk appetite of the investors. The safe government bonds were indeed traded in for corporate bonds that still offer somewhat higher yields. The spreads for corporate bonds shrunk again last month, not only for financial but also for non-financial issuers. The spreads of periphery countries went up slightly compared to German bonds. In Spain neither a right wing coalition (Partido Popular and Ciudadanos) nor a left wing (PSOE and Podemos) coalition was able to form a government after the elections of December 2015. The parliament is to be reelected on June 26, but the result might be very similar. The Spanish 10-year yield increased in line with other European issuers, to 1,59%.
In Greece, the negotiations about a new financing plan are still ongoing. The IMF dictates debt restructuring and further cutback measures, a plan respectively Berlin and Athens are fiercely opposed to. By July 20, a loan at maturity of 2.3 billion EUR must be redeemed.
3. Central Banks and Monetary Policy
The central banks keep affecting investor sentiment, even if no action whatsoever is taken as was the case last month. This especially applies to the Japanese central bank that against all expectation did not announce extra market stimulation measures. Because of the recent inflation figures (-0,3% in March) and weak consumption expenditure of households such stimuli were expected. In line with the prognosis, the monetary policy of the European and American central banks remained unchanged. Basically, the ECB wants to assess the impact of the measures taken in March first. The Federal Reserve
remains rather flexible in its comments, but left the door open for a rate increase in June
pointing out the strong job market and rising core inflation. Recent figures that suggest a slower than expected growth might, however, jeopardize that scenario.
The Japanese yen gained force (+4,8% compared to EUR) after the central bank decided not to take additional market stimulus measures. In April, the US dollar remained as weak as the month before, although earlier this month it appeared to do slightly better. A few disappointing macro-economic figures (GDP over first quarter, orders for durable goods, retail sales) again casted doubt about the timing of an interest rate increase in the United States. Commodity related currencies were able to close higher, with the exception of the Australian dollar for which an interest rate cut became more likely after the publication of lower than expected inflation figures.
On April 17, the oil producing countries failed to arrive to an agreement to freeze the production after Saudi Arabia insisted that Iran would freeze its production as well. Just like reaching an agreement was expected to have only limited impact on the oil price, the failure to reach such an agreement did – apart from an initial drop – not affect the oil price either. On the contrary, the oil price continued its way up in April
(+17,5% in USD). It appears that the American production is at its lowest point over the last eighteen months, a consequence of the fact that shale oil wells were closed down due to the low prices. A new attempt to coordinate the production will be made in June by OPEC and Russia. The prices of industrial commodities also recovered due to signs of stabilization in China and the weaker dollar. After fluctuating around the 1250 USD/ounce marker for several months, the gold price closed just below 1300 USD at the end of the month, its highest level since more than a year.
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