Robust U.S. economic data and unfavourable inflation prints in April supported the ongoing “higher for longer” interest rate narrative, penalising both equity and bond markets over the month. Developed market equities (MSCI World) fell -3.7% m/m while emerging market stocks (MSCI EM) managed a modest gain (+0.5% m/m), fuelled by investors’ interest in attractive valuations in China and higher commodity prices, which were driven by strong economic conditions and heightened geopolitical tensions. The Bloomberg Commodity Index ended the month up +2.7% as a result.

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Concerns that the Federal Reserve would delay interest rate cuts until September, if not until 2025, notably impacted interest rate sensitive sectors. Global Property (FTSE NAREIT Global Real Estate Investment Trusts) slumped -6.3% m/m as rate cut expectations fell, while global bonds (Bloomberg Global Aggregate) ended the month -2.5% lower. In the U.S., 10-year treasury yields rose 47bps to 4.7%.

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U.S. inflation (CPI) in March rose by 3.5%, marking the most substantial increase since September. Despite a decline from its peak of 9.1% in June 2022, the disinflationary trend has virtually stalled in recent months. Elsewhere, March brought surprising strength in retail sales, with a notable increase of 0.7%, surpassing consensus expectations of 0.3%. However, the latest GDP print for the first quarter of 2024 painted a less optimistic picture, revealing a meagre growth rate of 1.6%, significantly below expectations and representing the slowest pace of growth in nearly two years. The markets’ unease deepened with the release of the closely monitored core Personal Consumption Expenditures Price Index (PCE), which indicated an annualised increase of 3.7% in Q1, surpassing expectations and far exceeding both the fourth quarter’s 1.7% uptick and the Federal Reserve’s 2% long-term inflation target.

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In April, Eurozone inflation held steady at 2.4% y/y. Similarly, headline inflation in the UK also retreated, although concerns persist regarding the resilience of certain core components. With a less inflationary environment prevailing and the likelihood of stable yet tepid growth in both the euro area and the UK, market confidence in potential rate cuts from the European Central Bank (ECB) and the Bank of England (BoE) has strengthened relative to the Federal Reserve.

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Anticipation remains high for the ECB’s first cut, still expected during the summer, although only two cuts are now fully priced in by year-end. During April’s ECB meeting, President Christine Lagarde acknowledged that some members of the Governing Council were ready to reduce interest rates at that meeting, although the majority preferred to wait until June for more data. Meanwhile, the Bank of England is anticipated to follow suit but likely at a later stage, with the first cut now priced for September.

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Chinese economic indicators in March and Q1 2024 presented a mixed picture. Industrial production grew by 4.5% y/y, below expectations, while the house price index dropped by 2.2%, and retail sales increased modestly by 3.1%, missing projections. However, GDP expanded by 5.3% y/y in Q1, slightly surpassing market expectations despite a slight slowdown from the previous quarter. Chinese stocks also rallied, with the Shanghai Composite Index rising by 2.09% and the Hang Seng Index by 7.45%, reflecting growing investor optimism about the economy.

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Japanese equities retreated after five months of gains, influenced by widening interest rate differentials with other developed market nations. This trend exerted downward pressure on the yen and raised worries among investors about the potential for imported inflation to dampen domestic demand. Despite the rapid depreciation of the yen during the month, the Bank of Japan opted to keep rates unchanged at its April meeting. BOJ Governor Kazuo Ueda played down the impact of the weakened currency on inflation, triggering another round of yen selling.

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Following a two-month upswing, South African headline inflation softened to 5.3% in March from 5.6% in February. The rate has held its ground between 5% and 6% since September 2023. At the same time, retail sales fell by 3.2% m/m in February, compared to an increase of 1.2% recorded in the prior month.

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South African stocks touched their highest levels since January and the rand surged by the most this year after publication of a poll by Ipsos which was seen as boosting the odds of a market-friendly coalition emerging from national elections on the 29th of May. In other news, Eskom, the state power utility, has forecasted that the winter will be lighter in terms of energy interruptions than during the winter of 2023, with the power utility anticipating that it can stave off higher stages of load shedding.

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On the local market front, the JSE All-Share Index gained +2.95% over the month, buoyed by Resources (Resource 10 TR) surging +7.09%. In share specific news, Anglo American Plc received an unsolicited takeover offer from BHP Group Ltd, valuing the miner at $38.9 billion, potentially creating the world’s leading copper producer. Anglo’s Chairman dismissed the proposal as “opportunistic,” and BHP has until May 22, 2024, to make a firm offer.

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In bond markets, the yield on the 10-year government bond rose 6bps after a volatile month, to 10.94%. The rand marginally appreciated relative to the U.S. dollar, to end the month at $/R 18.78 from 18.86.