Global stock markets dropped in April as US inflation remained sticky, dampening hopes on a an early interest rate cut. The consumer price index (CPI) for March ticked up by 0,4% month-on-month, taking annual inflation to 3,5% compared to 3,2% in February. Core inflation remained at 3,8% year-on-year. The Federal Reserve’s (Fed) preferred measure of inflation - personal consumption expenditure (PCE) - also ticked higher to 2,7% in March. Bonds also came under pressure as the yield on 10-year treasury notes climbed 47 basis points to 4,68% after reaching a high of 4,70%, the highest since October last year.

This put negative pressure on US and other global developed markets. In the US the Dow Jones, S&P500 and Nasdaq Composite indexes lost 5,00%, 4,16% and 4,41% respectively throughout April. On the other hand the dollar gained 1,19% against the Euro to close the month at $1,0665/EUR.

In our view inflation will continue hovering around 3% to 3,5% range as long as the US labor market remains strong. Ironically this would mean that a weakening labor market would benefit US stocks and bonds. The US labor market however still remained strong with 303000 jobs being added in March, exceeding expectations for a fith consecutive month. The latest release however, published on May 3, saw a significant drop in newly added jobs, so cracks in the labor market may begin to reveal themselves. Also the first reading of US annualized GDP growth for the first quarter of 2024 came in well below the forecast 2,5%, namely at just 1,6%. In the final quarter of 2023 GDP growth still stood at a firm 3,4%.

Also Eurozone shares ended April weaker as the prospect of US rate cuts receded. The Eurostoxx 50, DAX and CAC indices dropped 3,19%, 3,03% and 2,69% respectively throughout March. Nonetheless an early interest rate cut from the European Central Bank (ECB) is still possibility as inflation stands at just 2,4% and core inflation continues to steadily drop, shedding 20 percentage points to 2,7% in April.

One of the exceptions in April was the United Kingdom where the FTSE index gained 2,41%.

The big winner in April however was China and Hong Kong with the Hang Seng index adding a 7,39% gain throughout April. Share prices in Hong Kong moved higher in April, driven by foreign investors seeking lower-valued Hong Kong-listed shares that pay higher dividends as optimism towards companies with exposure to mainland China improves.

In the commodities market gold reached an all-time-high on October 12 at 2448,80 dollars per ounce and is currently still firmly above $2300 per ounce as investors await more data on inflation and other macroeconomic data that could shed further light on the FED's next decisions.

Rudy Marchant
Fund manager Primorski skladi

Monthly reports - April 2024