Review of the markets and macro events of the past month. Between contrasting statistics and the end of the upward trend in bitcoin, through complications for stocks and the fall of the yen.
Chart #1: Contrasted macroeconomic figures
Citi’s U.S. Economic Surprise Index fell this month, suggesting more U.S. economic data is disappointing economists’ expectations. The PCE deflator (inflation indicator) unexpectedly increased to 2.7% in March (expected 2.5%), and the core PCE remained at 2.8% (expected 2.7%), marking an increase for two consecutive months. Fed Chairman Powell said there has been no significant progress on inflation this year. It will likely take longer to “regain confidence” in inflation.
US GDP growth in the first quarter was disappointing (1.6%), with rather sluggish growth in personal spending (2.5%), fueling fears of stagflation, where inflation rises but growth slows. ‘out of breath. In addition, financial conditions have tightened slightly and liquidity has declined.
Europe experienced a less inflationary environment than the United States, with euro zone inflation remaining stable in March at 2.4% year-on-year, although the important services component contracted by 30 points base at 3.7%.
Source: ZeroHedge, Bloomberg
Chart #2: The market once again pushes back the expected date for the first interest rate cut
During the month of April, market expectations for the number of rate cuts by the Fed this year continued to decline, forecasting only between 1 and 2 rate cuts for 2024 and delaying the date of the first drop. Four months ago, the market gave a 3% probability that there would be no rate cut this year. Today the markets have raised this probability to 36%.
In Europe, expectations for rate cuts are more favorable due to falling inflation and stable but still sluggish economic growth. Markets still expect the European Central Bank (ECB) to cut rates this summer.
Source: CME Group
Chart #3: Bond yields on the rise
In a context where only one rate cut is planned this year and where discussions revolve around possible rate increases, the yield on 10-year US bonds reached 4.73%, its highest level since November 2023, i.e. about 100 basis points above its December low. The yield on the 2-year Treasury bond rose 40 basis points to 5.0%. The Global Aggregate Index fell 2.5% over the month.
Source: Bond Market Returns, JP Morgan
Chart #4: A complicated month for the stock markets
The change in market sentiment made April the first month of declines in equity markets since the Federal Reserve’s October 2023 “pivot.” Developed market stocks fell 3.7%, the S&P 500 by 4.1% (its biggest monthly loss since September – see chart below), the Nasdaq and the Dow by 3% and 4.4% respectively. The Magnificent 7 suffered their first monthly loss since October and their worst performance since September.
European stocks outperformed US stocks, supported by better-than-expected economic indicators. The eurozone flash composite PMI (purchasing managers index) reached 51.4.
In the land of the rising sun, Japanese stocks fell, shedding some of their gains over the past five months, as widening interest rate differentials between Japan and other developed countries increased investors’ concerns about the imported inflation and its impact on domestic demand.
Source: Barchart
Chart #5: A mixed start for first quarter corporate results
In April, major companies published their first quarter figures. Overall, company results exceeded analysts’ expectations this quarter, helped by the fact that consensus expectations were rather low even though the global economy was doing quite well. Tesla (TSLA), Alphabet (GOOGL), Amazon (AMZN) and Microsoft (MSFT) reported results above expectations, while Meta Platforms (META) disappointed.
However, we note that the market punished companies that published results lower than forecasts more severely than usual.
Source: BofA
Chart #6: The Japanese yen collapses
The Japanese yen hit its lowest level since the 1990s, falling to 160 against the US dollar. Despite growing inflationary pressures and a continued depreciation of their currency, the Bank of Japan (BoJ) chose to keep its key rate unchanged at 0%-0.1% at its latest meeting, which is in line with expectations economists. The BoJ faces a complex economic dilemma: managing excessive debt (more than 250% of GDP) through accommodative monetary policies even as the country faces inflationary pressures.
Source: Bloomberg
Chart #7: Emerging markets are recovering
Emerging market stocks saw a record inflow of funds in April, with $20.8 billion in one week, the highest amount in history. This influx of capital contributed to the overall positive performance of emerging market stocks, which closed the month with a gain of 0.5% (up 2.8% year to date). The performance of emerging markets is also explained by the strong rebound in Chinese stocks.
Source: Global Stock Market Returns, JP Morgan
Chart #8: The impact of geopolitical tensions on global commodities
The risk of escalation in the Middle East has led to a surge in commodity prices. The Bloomberg Commodities Index rose 2.7% in April, making it the best-performing asset class of the month. U.S. oil futures rose above $85 a barrel after tensions in the Middle East worsened, demand forecasts were revised upwards and risks of supply disruptions increased. Copper rose around 14% to reach its highest level in two years, at $10,000 per tonne. The surge is driven by fears that global copper mines will struggle to meet the next wave of demand from green industries. Major industry players such as BlackRock and Trafigura have predicted supply shortages unless copper prices rise.
Additionally, mining giant BHP Billiton has offered to buy Anglo American for $39 billion. If the merger goes through, BHP-Anglo could control 11% of the world’s mined copper supply, according to Bloomberg.
Source: Bloomberg
Chart #9: Gold as a safe haven
In a context of geopolitical uncertainties, gold played its role as a safe haven and hedge against inflation. It reached record levels, exceeding $2,400 per ounce, before falling back. It appears that the Chinese central bank continues to actively accumulate gold, in an attempt to diversify its reserves away from the US dollar.
Source: FT
Chart #10: Bitcoin ends its uptrend with April decline
In April, bitcoin clearly reversed its recent positive trend, falling 15% after seven consecutive months of increases. The decline in bitcoin’s value has coincided with a decrease in flows into bitcoin ETFs; net flows were negative in April, at -$183 million, after substantial positive inflows in previous months: +$4.62 billion in March, +$6.03 billion in February and +1, $47 billion in January.
The fourth Halving of bitcoin took place on April 19, 2024. Since only three Halvings have occurred in the history of bitcoin, past performance cannot be considered statistically significant. However, historically, Halving has generally had a very positive effect on the price of bitcoin, particularly in the 6-9 months following Halving Day.
Source: Bloomberg
