Asia Pacific
The MSCI Pacific Index rose 2.0% in the week to 10 April.
Hong Kong’s Hang Seng was the region’s strongest performer, returning 7.9%, as a record level of funds flowed into the city’s stock market via the Shanghai-Hong Kong Stock Connect programme—a trading link with Shanghai that opened last year. Many investors view stocks in Hong Kong as cheap as they have lagged behind recent gains in Shanghai.
In Japan, the TOPIX ended the week 1.6% higher. The Bank of Japan left its monetary policy stance unchanged, as expected, at its March meeting. Governor Haruhiko Kuroda remained upbeat and dismissed the recent weakness in consumption and wage data, stating that wages should rise against the backdrop of the tightening labour market, which should lead to increased consumption.
Elsewhere, Australia’s resource-heavy All Ordinaries was up 1.1%, as a rebound in iron ore and oil prices in the second half of the week helped lift resource stocks. The Reserve Bank of Australia caught markets by surprise by leaving interest rates unchanged. Singapore’s Straits Times returned 0.5%.
United States
US stocks rose in the week to 10 April, as a tepid US employment report pushed back expectations for the timing of the first interest rate rise. The S&P 500 and Dow Jones Industrial Average both rose 1.7%, while the technology-biased Nasdaq was up 2.2%.
The latest employment report for March came in weaker than expected, confirming that just 126,000 jobs were created in the month—the first sub-200,000 monthly rise in a year. The slowdown in jobs growth led to speculation that the timing of the Federal Reserve’s (the Fed’s) first interest rate rise—expected to take place this summer—could be delayed.
However, other employment data readings remain positive, implying that the jobs market remains strong. The Job Openings and Labour Market Survey showed that total job openings increased 3.4% in February to a post-recession high. Meanwhile, the number of Americans filing new claims for unemployment benefits rose a less-than-expected 14,000 in the week ending 4 April, while the four-week moving average, and continuing claims, fell to post-recession lows.
Investors digested the minutes of the Fed’s Open Market Committee March meeting—published on Wednesday—which showed that policymakers were divided over when US interest rates may begin to rise. According to the minutes, “several” participants thought a June rate rise would be warranted, while a “couple” believed 2016 was more likely.
Although offering little clues over the timing of the first rate rise, the minutes stressed that the decision would remain dependent on financial market conditions and that the path of rising rates would remain gradual.
Uncertainty over the outlook for corporate earnings weighed on sentiment in the week, with analysts cutting their first-quarter earnings forecasts sharply, given signs of slowing growth and the recent strength in the US dollar. Industry analysts are currently estimating that S&P 500 earnings will fall 4% and 2.1% in the first and second quarters, respectively, and then increase 2.7% and 6.2% in the third and fourth quarters.
The outlook for interest rates, however, is likely to continue to drive sentiment in the coming months. Expectations are for the first rate rise to take place in September, with the possibility of a June rise diminishing following the weak jobs report.
Europe
European stock markets performed strongly in the week ended 10 April, boosted by headline-grabbing merger announcements. The MSCI Europe Index gained 3.3%.
Among the major markets, the UK’s FTSE 100 rose 3.8% and Germany’s DAX rose 3.4%, with both markets ending the week at a new record closing high. Elsewhere, the Swiss SPI jumped 3.5%, the French CAC 40 was up 3.3% and Italy’s FTSE MIB rose 2.4%, while Sweden’s OMX 30 gained 1.5% and Spain’s IBEX 35 was 1.0% higher.
Sentiment remained supported by the European Central Bank’s quantitative easing programme, which is expected to pump an additional EUR 60 billion per month of liquidity into markets until at least April 2016.
Markets were also lifted by rising merger activity, with the UK market in particular boosted by news of a GBP 47 billion agreed bid by oil producer Royal Dutch Shell to buy gas producer BG Group. The deal is the largest in the energy sector for more than a decade and the 10th largest merger deal ever according the Thomson Reuters.
With low oil prices forcing down share prices in the energy sector to attractive levels, investors expect further merger activity to follow as larger producers look to buy smaller rivals.
A weak euro, meanwhile, is helping to increase the attractiveness of eurozone companies to potential American bidders. Last week the US parcel delivery company FedEx agreed to buy Dutch rival TNT Express for EUR 4.4 billion. Again, investors expect further cross-Atlantic deals to follow.
On the political front, Greece was given a deadline of six working days to come up with a convincing programme of economic reforms so that a deal can be reached at the next meeting of eurozone finance ministers on 24 April to unlock EUR 7.2 billion in bailout aid.
With Greece due to pay out more than EUR 1.5 billion in April social security payments this week, and with a EUR 724 million loan repayment due to the International Monetary Fund on 12 May, there are fears that Greece could soon run out of cash. Concerns about the financial shock that would be caused by any Greek default helped push German Bund yields down to new record lows of just 0.14% earlier in the week.
In the UK, political uncertainty is helping to push the pound down on currency markets ahead of next month’s general election, with polls suggesting neither the Conservative Party nor the Labour Party would win enough parliamentary seats to form a government. With support ebbing for the Liberal Democrats—the junior partner in the current coalition government—investors fear the election could produce an unstable minority administration and boost the influence of smaller, anti-austerity or anti-European parties.
Global Emerging Markets
The MSCI Emerging Markets Index rose 3.5% in the week ended 10 April.
The strongest gains came from China, where the MSCI China Index surged 10.1% higher as investors anticipated a further monetary and fiscal boost as the government attempts to bolster economic growth. Hong Kong-listed stocks were also boosted by demand from mainland investors via the new Shanghai-Hong Kong Stock Connect programme.
Gains were more muted in other emerging Asian markets, with India’s Sensex up 2.2%, South Korea’s Kospi up 2.1% and Taiwan’s TAIEX 0.7% higher.
In Latin America, Brazil’s Bovespa rose 2.1%, boosted by oil producer Petrobras ahead of the release of financial results that have been delayed by a corruption scandal. Corruption-related losses are expected in the region of USD 1.6 billion – USD 2 billion. Mexico’s IPC rose 1.5%.
In emerging Europe, higher oil prices helped boost Russia’s RTS, which ended the week 7.4% higher. Hungary’s BUX rose 5.7% on positive economic news (stable March inflation data, and solid industrial production and retail sales in February), while oil producer Mol rose sharply on the back of higher profit forecasts.
Poland’s WIG was up 1.6% and the Czech PX 50 gained 0.3%, while Turkey’s ISE 100 fell 0.4% in the week. Turkish stocks weakened and the lira fell to new record lows against the US dollar as political risk mounted ahead of June’s general elections.
Bonds & Currency
Bonds were mixed over the week, with US 10-year yields up 10 basis points (bps), while German yields fell 4 bps to new record lows. UK and Japanese yields were largely unchanged.
US yields rose in reaction to the slightly more hawkish tone to the minutes of the last Federal Reserve interest rate setting meeting, with several participants reported to favour a rate increase in June. However, expectations for the first rate increase remain uncertain, with investors moving towards a September date in the wake of last week’s disappointing employment report.
*Source: J.P. Morgan Asset Management
