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Events in the US economy continued to dictate terms to markets in April. However, the news was less negative, with better than expected earnings reports and macroeconomic data showing the global downturn was still moderate. Growth data released showed the US economy grew by 0.6% in the March quarter, its weakest performance in five years. The Fed again cut the Federal Funds rate, this time by 25 basis points. However, with the rate now down to 2.00% markets now expect the Fed to pause. In Australia, domestic demand slowed and unemployment rose slightly above the record lows of March, although robust growth is still forecast for 2008. Inflation concerns increased with March quarter CPI figures indicating an annual rate of 4.2%. Slowing domestic demand and uncertainty in international financial markets saw the RBA decide to leave interest rates unchanged in May. In the other major economies, central bankers continue to take a cautious policy approach based on concern over economic conditions in the US and volatility in global financial markets, with the Bank of Japan and the European Central Bank leaving rates unchanged in April. Clear evidence of slowing in the UK led the Bank of England to lower rates by 25 basis points to 5.00%. Equity markets worldwide made gains in April. Equity markets fell early in the month then rose after some US firms released better than expected earnings reports. Performance of equity markets in April reflected the view that, although the ‘credit crunch’ is far from over, the low point may have been reached. It remains to be seen, however, if this is a sustained turnaround. Overall, the MSCI Developed Markets world index rose 5.9% in April whilst Emerging Markets as a whole performed even better, gaining 7.0%. The US market performed poorly for the first half of April, before making strong gains in the second half to see the S&P 500 up 4.8% over the month. Elsewhere, the ASX 200 finished up 4.5% with strong results across non-consumer sectors. The European Stoxx was up 5.5%, and in Asia, the Shanghai 180 grew 6.4%, the Hang Seng finished up 12.7%.and the Nikkei gained 10.6%. India recorded its best performance since October, up 11%, while the Brazilian Bovespa is at record highs after S&P upgraded the country’s credit rating, also rising 11% for the month. Government bonds were sold heavily in April as investors renewed their appetite for risk. Japanese bonds in particular were sold heavily - with sell-offs so severe that a 15 minute halt in trading was ordered on the 25th - and yields rose significantly, up 31 basis points for the month. US bond yields moved up in April, finishing the month up 33 basis points. Australian 10-year Commonwealth bond yields ended the month up 25 basis points at 6.29%. The A$ rose against all the major currencies in April, up 3.2% against the US$ and reaching a new 24-year high of 95.41 US cents, with some forecasters suggesting parity against the US$ may occur for the first time since the currency was floated. Commodity price fluctuations and the dumping of the Yen, as investor risk aversion fell, supported the A$. The US$ rose against the Yen (4.1%), Euro (0.9%), and fell slightly against the Sterling (-0.2%). Precious metal prices fell in April as investor aversion to risk eased. Results for base metals were mixed, with aluminium and nickel falling, but copper prices rising as strikes constrained world supply. April saw the Economist base metals index up 3.8%, the gold price down 6.7% and the price of West Texas Intermediate Oil up 11.7%. Overall, the CRB index of commodity prices finished 4.3% higher in April. This article provides general information only and may not be relied on as legal or financial advice. |
