Market Analysis Apr 2021

April showcased a robust performance in US equities, propelled by encouraging economic data. Although Q1 GDP growth of 6.4% (quarter-on-quarter, annualized) narrowly missed expectations, the composite purchasing managers' index (PMI) surged to 59.7 in March, the highest uptick since 2014. Notably, consumer confidence soared, with approximately 70% of the US population having received at least one vaccine dose.

The policy landscape is anticipated to maintain a highly accommodative stance, as President Biden proposed an additional $2 trillion for infrastructure and manufacturing subsidies following the $1.9 trillion fiscal stimulus package. The Federal Reserve reaffirmed its commitment to supporting economic recovery and employment by sustaining an economy-wide "hot" approach. Asset purchases are expected to persist, given that the central bank considers its stable economic growth objectives to still be some distance away.

Positive economic conditions, favorable policies, and robust earnings amalgamated to boost investor sentiment. Major tech firms, such as Alphabet, Amazon, Apple, Facebook, and Microsoft, delivered impressive performances, contributing to a combined revenue surge of 41% in Q1. Consumer discretionary stocks also flourished in tandem with growing consumer confidence. Energy and consumer staples sectors, however, experienced milder gains compared to the broader index.

April unfolded with gains in Eurozone equities, as higher-growth sectors surpassed lowly-valued segments. Information technology, real estate, and consumer staples emerged as the top-performing sectors, whereas energy recorded a negative return. The consumer discretionary sector experienced profit-taking in its automotive stocks following robust gains in March, while luxury goods exhibited resilience. Q1's earnings season commenced on a positive note, with several banks reducing reserves due to government and central bank support mitigating an influx of non-performing loans.

Amidst rising Covid-19 infections, Germany and other nations sustained elevated infection rates, although Italy witnessed a deceleration, leading to the relaxation of restrictions in certain regions. The acceleration of Covid-19 vaccinations in multiple Eurozone countries contributed to a more optimistic outlook. Although the Eurozone economy contracted by 0.6% in Q1, the manufacturing PMI survey achieved a new record high of 63.4, indicating heightened optimism. Inflation escalated to 1.6% in April from 1.3% in March, though the core measure, excluding energy prices, exhibited a more modest uptick of 0.8%. The European Central Bank maintained its pace of asset purchases in April to prevent an increase in borrowing costs that could undermine economic recovery.

UK equities demonstrated robust performance in April, with the FTSE 250 index attaining all-time highs, predominantly driven by small and mid-cap stocks. While a partial reversal of the trend of lowly valued stocks outperforming occurred, UK domestically focused stocks and mining companies reaped benefits from robust commodity prices and the relaxation of lockdown measures. Although large oil and gas companies and financials initially underperformed, encouraging Q1 outcomes from major cap banks enabled the latter to regain momentum.

Upbeat economic data fortified the strength in domestic market segments, with retailers, housebuilders, business support services entities, and construction groups showcasing notable performance. Retail sales surged in March prior to lockdown easing, and house prices maintained strong momentum in April. The IHS Markit/CIPS UK Composite Purchasing Managers' Index also ascended to its highest level since November 2013.

April saw the Japanese equity market experience a 2.8% decline over just two days, triggered by concerns of potential government-imposed activity restrictions. Although Japan's Covid infection rates remained lower than in most nations, the steady rise in cases ignited concerns among the populace and heightened criticism of the government's response. The country's vaccination program also failed to accelerate as initially projected, resulting in a state of emergency reimposition for Tokyo and three other prefectures from April 25. Despite the state of emergency, the country's industrial production data remained robust over the last three months.

In Asia ex Japan, equities achieved modest gains in April, propelled by the global Covid-19 vaccine rollout, which bolstered optimism for a return to economic normalcy. Taiwan emerged as the strongest index market, fueled by non-technology stock gains. Resource, industrial, consumer discretionary, and financial sectors also outperformed. Several nations, including Malaysia, Singapore, and Hong Kong, reported modest gains during the month. Conversely, Pakistan experienced the weakest index performance in April, with Thailand and India also facing relative weakness. China's market achieved a moderate gain, led by healthcare, materials, and staples, while real estate, utilities, and financials exhibited underperformance. In India, mounting Covid-19 cases influenced market sentiment, with healthcare and materials outperforming while consumer staples and discretionary sectors lagged. Throughout April, mid-cap and small-cap stocks outperformed large-cap counterparts. Indonesia and the Philippines both posted modest declines for the month, while Korean equities showcased positive performance.

The decline in the US government bond market halted in April, partly attributed to comments from the Federal Reserve (Fed). In contrast, European yields experienced growth amid escalating growth and inflation expectations, leading to price decreases and a widening gap between the US and Europe. Corporate and emerging market bonds exhibited favorable performances, alongside a weakened US dollar, propelled by sustained optimism regarding economic recovery.

Throughout April, the US 10-year Treasury yield descended by 11 basis points (bps) to 1.63%. The Fed acknowledged improvements in the economy and a brighter outlook, while emphasizing the non-immediate prospect of policy support reduction. Q1 witnessed the US economy achieve a growth rate of 6.4%, surpassing expectations.

European yields displayed resilience amid recent months' global yield sell-offs. Nevertheless, April witnessed heightened growth and inflation prospects, causing German 10-year yields to increase by 9 bps to -0.20%. Italy's 10-year yield rose by 24 bps to 0.90%, while Spain's increased by 14 bps to 0.47%. The UK's 10-year yield remained steady at 0.84%.

Corporate bonds delivered positive returns, surpassing government bonds. In the US credit market, investment-grade bonds marginally outperformed high-yield bonds, facilitated by decreasing yields. European investment-grade bonds remained stable, surpassing government bonds in performance. High-yield bonds posted positive gains.

Emerging market bonds, especially those denominated in local currencies, advanced due to the weakened US dollar. Hard currency debt in emerging markets performed well, with high-yield bonds delivering over 3.5% gains. Emerging market corporate bonds exhibited more modest positive performance.

The Refinitiv Global Focus index, which gauges balanced convertible bonds, ascended by 1.3%. Convertible bond valuations, particularly for specific US technology and growth companies, exhibited a slight decrease.