Market Round Up

UK   

• Factors such as the volcanic ash situation and the Goldman Sachs case in the US impacted on the strong start to April.
• FTSE 100 recovered slightly from a sharp fall in the last week, with the news that some of the pressure has been taken off the UK in the package to shore up the Eurozone economies. 
• The hope that the “hung parliament” issue is resolved by a Conservative/Liberal pact has fuelled momentum, with cyclical stocks such as financials and mining leading the way.
• Interest rates are predicted to stay low at least until the end of the year, with concerns over the fragility of the recovery in the economy uppermost in the Bank of England’s mind.
• We expect the muted recovery to continue, with large cap equities enjoying some favour due to overseas exposure.
• Amidst hope that much of the uncertainty of a hung parliament has already been priced in, commentators stress the importance, more than ever, of portfolio diversification across all asset classes.
• House prices rose further and exports picked up due to the weakness of sterling, but Gross Domestic Product (GDP) growth is still low and the trade deficit increased by more than expected.

US

• Energy, industrials and consumer discretionary sectors have posted a strong recovery over the last month. Sales of new homes picked up and manufacturing levels hit their highest in five years.
• The biggest detractor was the Goldman Sachs affair which hit shares of all the major investment firms. This and the situation in the Eurozone have caused some risk aversion.
• Other economic news is positive, with increased employment levels and improved consumer activity.
• The Fed has pledged to keep interest rates low for an extended period and despite a severe trading glitch last week, they believe that a “double dip” has been averted.
• US predicted to outperform Europe & UK.

Europe    

• Despite the package put together to alleviate the Greek debt crisis, there is still much uneasiness that other major regions, especially Portugal, Ireland and Spain, will be implicated due to the weakness of their respective economies and the inter dependence of the Eurozone.
• Yields on short term bonds rose to unprecedented levels and higher borrowing costs are likely to hinder economic growth.
• Europe has also been impacted by the volcanic ash situation, with European airlines losing millions over a few days.
• Some positive news from Germany, with a fall in the level of unemployment, and although the economic outlook has improved, recovery will remain slow and volatile.

Asia & Emerging Markets

• The second half of April saw volatility return to Asia with steps to cool the growth of the property markets in China.
• Divergence of the BRIC (Brazil, Russia, India and China) economies highlighted by India and Brazil raising interest rates and Russia cutting for the first time in 13 years.
• India’s central bank governor opts for a gradual removal of fiscal stimulus in the best interests of the economy.
• Australian market reacted badly to the prospect of mining taxes, although details of the proposal remain unclear.
• Emerging markets also fell with investor unease over the Greek debt crisis.

Japan

• Advances in the Euro and Dollar against the Yen gave Japanese exports an edge, although this was blunted by events in the US and China, its two main trading partners.
• Despite the high profile recall of several models, car manufacturer, Toyota, and Canon both posted strong results.
• The Governor of the Bank of Japan has given assurances that stimulus measures will continue. 
• Generally positive news, but the market is likely to remain volatile in the short term.

Fixed Interest

• During the first half of April, high yield and investment grade corporate bonds enjoyed a strong bounce due to a return of investor appetite for risk as a result of positive economic data and healthy corporate earnings figures. This trend reversed in the second half of the month as the Greek sovereign debt crisis took centre stage.
• Inflation linked bonds were range bound, but enjoyed a brief bounce when risk aversion returned in the second half of the month. 
• The strongest case is for holding corporate debt in preference to government bonds, which remain the most vulnerable asset class even outside Southern Europe.
• Also there continues to be a case in favour of strategic fixed interest funds, as market uncertainty continues.  

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