UK
UK equity markets buck the global trend: although many developed markets fell over the month following disappointing US inflation data, the FTSE 100 Index reached a new all-time high, driven up by sterling’s weakness against the US dollar, signs of a shift away from the technology sector, and encouraging corporate earnings data.
A flurry of bid activity: the FTSE also received a boost from takeover activity in the mining sector as BHP launched a bid – subsequently rejected – for Anglo American. Takeover activity also featured in the FTSE 250 Index as US private equity company Thoma Bravo agreed a bid with UK cybersecurity firm Darktrace. Over April as a whole, the FTSE 100 Index rose by 2.4%; in comparison, the more domestically sensitive FTSE 250 Index rose by 0.4%.
Inflation continues to fall: the UK economy expanded by 0.1% during February, and the Office for National Statistics (ONS) revised up its January growth figure from 0.2% to 0.3%, raising hopes that the country has moved out of recession. The annualised rate of consumer price inflation reached its lowest level since September 2021, falling from 3.4% to 3.2% in March. Elsewhere, the UK labour market showed signs of weakening: the rate of unemployment rose to 4.2% over the three months to February, and the proportion of economically inactive people climbed to 22.2%. Average growth in real wages rose by 1.6% over the period, reaching its highest level since the July-September quarter of 2021.
“Healthy, but unexciting”: dividend payouts from listed UK companies rose at a headline 4.9% to £15.6 billion during the first three months of 2024, according to Computershare’s Dividend Monitor. However, underlying growth was a “healthy, but unexciting” 2%. Looking ahead, Computershare raised its forecast for headline growth over 2024 from 3.7% to 4.3%, based on expectations of an increase in special dividends, whereas underlying full-year growth is set to be more muted at 1.5%.
Profit warnings on the rise: over the 12 months to the end of March, 18.7% of UK listed companies warned on profits, according to a study published by EY Parthenon, representing a new post-pandemic high. EY Parthenon also reported an increase in companies highlighting accounting and operational issues as a trigger for a profit warning, alongside a rise in financial services companies citing regulatory action.
Global
‘Higher for longer’: investor sentiment around the world was dampened during April as higher-than-expected inflation and employment data from the US stifled hopes of an imminent reduction in interest rates. Bond yields rose amid expectations of ‘higher-for-longer’ rates: the yield on the ten-year US Treasury bond ended April at 4.68%, compared with 4.21% at the end of March, while the thirty-year Treasury bond yield rose from 4.35% to 4.78%. Over the month, the Dow Jones Industrial Average Index fell by 5%.
US growth disappoints: having expanded at an annualised rate of 3.4% in the final three months of 2023, the US economy grew by a relatively lacklustre 1.6% during the first quarter of 2024. In a speech, Federal Reserve (Fed) Chair Jerome Powell highlighted: “solid growth, a strong but rebalancing labour market, and inflation moving down to 2% on a sometimes-bumpy path”. The Fed’s first cut in interest rates is now widely expected to take place in September, with a second cut possible towards the end of the year.
Cut on the cards for Europe? Despite the news from America, the European Central Bank (ECB) is still expected to implement a rate cut in June. The ECB left its key interest rate unchanged for another month at 4.5% but indicated that policymakers were continuing to move towards a more dovish stance, fuelling speculation that a cut was on the cards for June. In a statement, the ECB said that, if inflation continues to move sustainably towards its 2% target, “it would be appropriate to reduce the current level of monetary policy restriction”. The rate of inflation in the eurozone fell to 2.4% year on year during March, and the bloc’s economy grew by 0.3% over the first quarter. Over April, the Dax Index fell by 3%.
BoJ to tighten? Business confidence deteriorated amongst large Japanese manufacturing companies during the first three months of 2024, according to the Bank of Japan’s (BoJ’) quarterly Tankan survey. Although the BoJ maintained its monetary policy stance during April, speculation is growing over the possibility of another rate increase later in the year. Meanwhile, the yen weakened against the US dollar amid rising expectations of ‘higher-for-longer’ US rates, but subsequently rebounded, triggering conjecture that Japanese authorities had intervened. The Nikkei 225 Index fell by 4.9% over the month.
As ever, if you have any questions regarding your investments, please do not hesitate to contact us by calling +44 (0) 7917 390 344 or emailing me at richardbrazier@culverfinancial.co.uk and we will be happy to talk to you.