Sabco® Investment's Monthly Market Report - April, 2023

Sabco® Investment's Monthly Market Report - April, 2023

April was characterized by low volatility in equity markets as investors adopted a cautious approach, awaiting more clarity on economic trends and monetary policy.

Equity markets experienced limited volatility during the month, exemplified by the S&P 500 having only three sessions with price movements exceeding 1%. Market participants adopted a wait-and-see attitude in anticipation of policy meetings by the Federal Reserve and the European Central Bank. Mixed macroeconomic signals failed to provide a clear direction for prices. The stock markets received some support from better-than-expected earnings in the US, particularly from major technology companies. However, the performance was largely driven by these specific names, raising concerns about the breadth of the market's strength.

Overall, stock markets remained relatively flat, consolidating the recovery that began in late March after a period of banking stress. European stock markets performed slightly better than other regions. The performance of US equities in euro terms was impacted by a weaker dollar, and Japanese equities faced additional pressure due to the depreciation of the yen. Emerging markets underperformed, with Chinese equities experiencing weakness despite better-than-expected growth figures. Latin American stock markets also showed weakness.

Bond yields lacked a clear direction in April. Initially, both US and European 10-year bond yields moved slightly higher as investor risk appetite improved following the banking sector turbulence in March. However, economic prospects remained uncertain, and some price indicators indicated persistent inflationary pressures. Investors also adopted a wait-and-see approach ahead of the policy meetings by the Federal Reserve and the European Central Bank in early May. Shorter-term bond yields, which align more closely with monetary policy expectations, remained relatively stable. US 2-year yields hovered around 4.0% throughout April, while German yields fluctuated within a range of 2.2% to 2.5%.

Euro-denominated investment-grade corporate bond spreads continued to recover in April from the previous month's jump caused by increased risk aversion. Investment-grade spreads narrowed back to pre-banking stress levels, although high-yield bonds had not yet fully returned to their previous levels.

Both the Federal Reserve and the European Central Bank maintained a quiet period in April ahead of their respective policy meetings in early May. Market participants focused on the Fed's interest rate outlook and any indications of a prolonged period of low rates. The ECB's meeting revolved around the potential adjustment of its pace of rate hikes after a series of significant hikes in recent months.

The Bank of Japan (BOJ) kept its policy rate unchanged as expected, and it projected that inflation would fall below the 2% target by 2025. This suggests that the BOJ may not follow the interest rate hike cycles seen in other parts of the world. The BOJ also decided to maintain its yield curve control policy, contrary to expectations of potential easing or abolition. The yen weakened significantly following these announcements, reaching its lowest level against the euro since 2008.

The euro strengthened against most currencies in April, supported by the ECB's ongoing monetary tightening and better-than-expected economic activity. The dollar weakened against the euro as concerns about a banking crisis diminished, shifting attention back to the relatively weaker US economy. The dollar reached its lowest level against the euro in over a year. Other currencies tied to the dollar also followed the downward trend, with weaker commodity prices adding to the pressure.

Industrial metal prices declined in April due to concerns about demand fuelled by macroeconomic data. Lower-than-expected GDP growth in the US and weak activity in the Chinese construction sector contributed to the decline. Copper prices, in USD terms, fell by 4.4%. Despite generally low inventories, recession fears prevented replenishment.

Brent oil prices remained largely unchanged in April, reversing the initial jump that followed the unexpected production cut by OPEC+ at the beginning of the month. The price fell below $80 per barrel due to anticipated lower demand resulting from a global growth slowdown. Additionally, an influx of Russian crude into the market became more apparent.

Gold prices continued to rise in the first half of the month, reaching levels around $2,040 per ounce, matching the highest levels of the past three years. However, in the latter half of the month, gold prices retraced slightly to below $2,000 per ounce. Lingering high inflationary pressures, which could influence monetary policy decisions related to prolonged low interest rates, contributed to the price movement.