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Market Update April 2024

Geopolitical concerns unsettle markets


  • Iran attacked Israel with over 300 drones and missiles. In response, Israel launched missiles against targets in Iran, including the city of Isfahan.

  • The VIX volatility index, sometimes called Wall Street’s fear gauge, hit its highest level since last October.

  • UK equities outperformed, with the FTSE 100 reaching a new all-time high.

  • The US Federal Reserve's preferred inflation measure, US Personal Consumption Expenditures Price Index, rose more than expected to 2.7% in the year to March.

  • UK inflation fell more than expected to 3.2% in the 12 months to March.

  • Humza Yousaf resigned as Scottish First Minister.

  • Mining giant Anglo American rejected a £31bn takeover offer from Australian rival BHP Billiton.

  • The US House of Representatives approved a new $61bn package of military assistance for Ukraine.

  • The price of cocoa hit a record high following disease and poor weather linked to climate change in West Africa.

  • UK MPs voted to ban anyone born in or after 2009 from ever purchasing cigarettes.

  • The UK National Farmers’ Union warned of substantially reduced food production this year. This follows extreme weather and flooding linked to climate change.

 

The strong performance of equities so far this year suffered a pause in April, with fears over the escalating conflict in the Middle East causing investors to become more cautious. A hot US inflation print together with continued evidence of a strong labour market also weighed on markets. It caused investors to scale back their expectations for interest rate cuts from central banks. The Bank of England is now priced to wait until September to start cutting rates. This created a headwind for the performance of bonds, with falling prices causing the yield on 10-year UK government bonds to jump from 3.9% to 4.4%.

 

Commodity prices were broadly strong over the month, with the price of Brent Crude oil rising above $90 per barrel for the first time since October, on fears that elevated geopolitical risks could impact supply. This adds further inflationary pressure. Another commodity, gold, also rose strongly. It achieved a record high, benefitting from the flight to safe assets.

 

UK equities, supported by the high share of energy and commodity companies, ended the month as the top-performing equity market. There were also further signs of M&A activity in the UK, with UK-listed Anglo American rejecting a £31bn takeover from rival BHP Billiton. Reports indicate that Australian-based mining titan BHP is contemplating an enhanced offer. This rejection, which the company’s chairman, Stuart Chambers, described as "opportunistic" and one that significantly undervalued the company's prospects, has highlighted how cheap some UK assets appear to be on the global market. This incident aligns with a broader trend in the UK stock market which has witnessed a substantial uptick in M&A, with activity involving UK companies soaring by 88% this year, making the UK the second most active region for takeovers globally. M&A activity should continue to support UK equities.

 

A number of US companies reported first-quarter earnings during the month. So far this has seen companies broadly beat expectations, albeit against a low bar. This earnings season has been much anticipated for signs of whether US stocks, particularly those of the larger variety, can grow earnings sufficiently to justify their lofty valuations. Within the US, we continue to favour stocks that are generating excess cash that is being returned to shareholders rather than simply holding the largest stocks.

 

Within Asia, Chinese equities moved back onto investor's radars. Recent data shows that the Chinese economy is starting to pick up. The regulator has also announced new measures to help halt a market slump, which is improving sentiment towards the region. The Japanese Yen fell to its lowest level against the US Dollar since 1990. This created a headwind for the performance of Japanese equities when measured in Sterling.

 

By the end of the month, markets had calmed somewhat. Investors have quickly stepped down from high alert on an escalation to the Middle East conflict and have returned to a pre-occupation with the next move for interest rates and when this will happen. Israel’s show of strength, in that it could strike whenever it wishes against Iran with extreme force, seems to have quietened matters down for now. There is renewed hope that through M&A activity, the relief that the longer-term trend for inflation still appears to be falling and hopes that a ceasefire could be negotiated in the Middle East, will all contribute to a continued rally in global equity markets.


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This document has been prepared for Ermin Fosse Financial Management LLP and is for information purposes only.


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