April saw a continuation of the rally in risk assets as well as new highs for both the S&P 500 and technology-rich Nasdaq. Accommodative central banks and optimism around a Sino-American trade deal being finalised was viewed positively by markets. This along with positive growth data in the US and Europe, signs of a recovery in the Chinese economy, a solid Q1 earnings season in the US and the Brexit deadline being pushed to 31 October fueled market rises.

Below, we cover the events of April in detail.

April Overview

South Africa’s inflation increased slightly to 4.5% (year-on-year) in March from 4.1% in February. This was slightly below expectations and in the midpoint of the Reserve Banks inflation target. Producer prices increased slightly more than expected to 6.2% which is generally seen as a leading indicator for consumer price inflation. Risk to inflation remains with external factors such as higher oil prices and a weakening currency. South African retail sales increased more than expected to 1.1%, although this was less than the previous annual reading in January of 1.2%. Confidence remains low in South Africa with the SACCI Business Confidence Index and BER Consumer Confidence Index both falling further in March to readings of 91.8 and 2 respectively (from 93 and 6). Strikes continued to plague the resources industry with gold production falling by 21% over the last year.

The rand strengthened over the period, however this is more a matter of circumstance given when the reading of the currency is taken. The exchange rate reading at the end of March does not take into account Moody’s decision not to review the country’s credit rating. This resulted in a strong recovery in the rand late in the evening at the end of the month. The rand continued to strengthen into the middle of April from where it started weakening again from a low of just under R14 to the US dollar to over R14.30. The table below summarises the rand’s performance against a number of major currencies for the month:

Politics was again at the forefront of UK news with the European Union (EU) offering a flexible extension of the UK leaving the EU until the 31st October (‘flexible’ meaning the UK can leave earlier if the withdrawal agreement is ratified), which Theresa May duly accepted. This removed the immediate risk of the UK crashing out without a deal, and UK equity markets bounced a bit on the back of this news. In addition, economic data surprised to the upside in April: unemployment in March remained at its lowest level in 44 years and wage growth rose to 3.4% (year-on-year). This positive labour data has assisted the broader economy with manufacturing Purchasing Managers Index (PMI) jumping to 55.1 for March, from just above 52 in February.

US non-farm payroll figures in March were stronger than anticipated, recording an increase of 196k jobs, compared to a 33k gain the previous month. Unemployment remained at 3.8% and wage growth was 3.3% (year-on-year). This mean that real wage growth remained in the sweet spot: high enough to support consumption but not high enough to cause inflation worries for the US Federal Reserve (Fed). In fact, core inflation continues to tick lower, with a lower-than-expected 2.0% in March. PMI data all still pointed to an expansion although its components are heading in different directions: manufacturing at 55.3 (a surprise increase from the previous month) and non-manufacturing at 56.1 (a decrease from 59.7 the previous month). First Quarter GDP growth was estimated at 3.2%, much higher than expected, although 1% came from trade, a particularly volatile element, and 0.7% from increasing inventories, which tends to mean revert. It is thus unlikely that this high level of GDP growth will continue in the next few quarters, especially adding-in the business tax cuts tailwind which will begin to diminish from next quarter onwards. April also saw the bulk of companies beating their Q1 earnings estimates, although estimates had generally been lowered leading up to the reporting period.

Eurozone manufacturing data continued to be poor, with European flash manufacturing PMI only edging up to 47.8 in April, from 47.7 in March – still contractionary. There was a more positive picture on the labour front with unemployment falling slightly to 7.7% in March, consistent with a relatively stable consumer confidence figure which fell a little, but is still well above the long-term average. Q1 GDP growth for the eurozone also came in at a higher than expected 0.4% quarter on quarter. Inflation figures for March showed Eurozone CPI nudging lower to 1.4% with core CPI dropping to 0.8%, the lowest level in a year. This provided further reasoning for the European Central Bank (ECB) to continue its accommodative monetary policy stance and in April’s monetary policy meeting, they kept the deposit rate steady at -0.4% and reaffirmed their intention to not raise rates until next year.

The Bank of Japan left its key short-term interest rate unchanged at -0.1% at its April meeting, as widely expected and left in place its zero percent target for 10-year government bonds. In addition, they gave greater guidance on the future of policy rates, stating that the current extremely low interest rates will be maintained until at least Spring 2020, while trimming forecasts for GDP growth rates in 2019 and 2020.

In emerging markets (EM), supply concerns and a possible end to the US waivers on Iranian oil sanctions resulted in a higher oil price in April, problematic for oil importers in the region. Also, a strong US dollar relative to most EM currencies continues to be a headwind, particularly in Turkey and Argentina (falling 5% and 2.5% vs the dollar, respectively). On a more positive note, Chinese growth was recorded at 6.4% in Q1 (helped by strong industrial production figures), above market expectations.

Asset Classes

The continued “risk on” environment saw local equity take the lead in performance for April. Local property also had a welcome bounce as it returned the second best performance for the month in rand terms. Hard currency returns broadly saw equity markets performing strongly although global listed property underperformed after a number of strong months prior to April, negatively impacted by rising global rates. A summary of the month’s asset class performance is shown below:

GPS PERFORMANCE FEEDBACK – April 2019

GBP Asset Classes and Currency Performance

April was positive for most risk assets, with continental European equities performing most strongly, followed closely by US equities. After a very strong few months, global listed property was the biggest faller, negatively impacted by rising global rates.

Risky bonds also performed well, led by high yield, whilst the bonds most exposed to interest rates (like government bonds and inflation linkers) fell somewhat as global yields rose.

A stronger GBP pound and an easing of Brexit pressure as the Article 50 deadline was extended to 31 October saw the FTSE 250 outperform the FTSE 100, up 4.2% and 2.3% respectively

GBP ASSET CLASS PERFORMANCE FOR THE MONTH

GBP CURRENCY PERFORMANCE FOR THE MONTH

USD Asset Classes and Currency Performance

The US dollar generally strengthened over the month, except against the pound sterling and South African rand. Global listed property performed the worst followed by global sovereign bonds.

USD ASSET CLASS PERFORMANCE FOR THE MONTH

USD CURRENCY PERFORMANCE FOR THE MONTH