Equity markets posted strong returns in April 2019, continuing the upward trend that has defined the calendar year thus far. The Australian share market rose 2.4% over the month, which was slightly weaker than both developed and emerging markets. The Australian Dollar decreased against most major currencies, and investment grade credit spreads broadly contracted.

Early in the month of April the managing director of the International Monetary Fund (IMF), Christine Lagarde, acknowledged “synchronised deceleration” in global growth. This sentiment was backed up a week later with the IMF revising their prediction of global growth forecasts downward by 0.2% to 3.3%. The World Trade Organisation (WTO) and European Central Bank (ECB) followed suit and reduced predictions of growth globally with the ECB noting [they] “will consider if negative [interest] rates need mitigating”.

April was also a month of positive intent in negotiations from major governments, but with no concrete actions being confirmed:

In the United Kingdom, parliament rushed to determine an action plan, given all prior Brexit options had been voted down, ahead of the 12 April deadline. Following the inability to reach agreement on Brexit policy, Prime Minister Theresa May asked the President of the EU council, Donald Tusk for an extension, which was granted until 31 October.

Other major negotiations were between China and the US over their ongoing trade war dispute. Early in April Larry Kudlow, an economic advisor to Donald Trump, said that there was “good headway” in the negotiations. Latest reports suggest that the trade deal could be finalised as early as the end of May. US Secretary of the Treasury, Steve Mnuchin, added that the US is “open to repercussions” if no deal was reached, with two more rounds of negotiations scheduled soon.

The Australian Government released its budget for 2019-20 in April, which included tax cuts for middle and high-income earners and small businesses and is projected to return a surplus. Federal elections will be held in Australia on the 18th of May.

Equities

Equity markets accelerated their strong returns in April. Developed markets returned 3.8% in local currency terms, with the European market delivering the strongest returns followed by Japan and the US. Emerging markets underperformed developed markets over the month whilst the Australian stock market returned 2.4% during April.

The highest returning sector in Australia was Consumer Staples, followed by Information Technology and Consumer Discretionary. The worst performing sectors were Materials, Real Estate and Utilities, the only three sectors to post a negative return for the month.

From a developed market sectoral perspective Financials and Information Technology were the best performing sectors, whilst the only detractors in local currency terms were Health Care and Utilities.

Bonds

Bond yields in the shorter-end of the curve decreased in Australia as weak inflation numbers caused investors to revise downwards their expectations for the future path of interest rates, whilst ten-year yields finished the month roughly flat.

At month-end, the two-year Australian government bond yield had fallen by 0.14% whilst the ten-year yield was flat. Falling bond yields are positive for short term bond investment returns.

Overseas, yields rose in most major developed economic regions, with ten-year yields rising further than shorter-term bond yields.

Currencies

With domestic interest rate expectations rapidly falling compared to global peers, the Australian Dollar came under pressure late in the month. The Australian currency fell against most global peers over the month, with falls of almost 0.7% registered against the US Dollar, Euro and British Pound. However, the AUD did manage to rise against both the New Zealand Dollar and the Swiss Franc.

The Australian Dollar finished the month at 0.7048 US Dollars.

Commodities

WTI crude oil rose 6.3% during April as the combination of tightening US and OPEC supply, strengthening Chinese manufacturing data, military tensions in Libya and the US taking a hard line approach to enforcing sanctions on Iran all pushed prices higher.

Industrial metals dropped 3.5% on average, with iron ore the strongest performer and aluminium the weakest, whilst precious metals had another negative month as risk-on sentiment continues. 

Performance of key markets 

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