Bears resuscitated, at last?

In April, inflation remained a major worry, impacting the performance of stocks and bonds. Despite strong private demand, the first quarter's weak US GDP report added to concerns that central banks might not react quickly enough to support the economy. Rising bond yields also strained stock valuations, leading to a 4.2% drop in the S&P 500.

The impact of spike in yields was evident, particularly in sectors sensitive to interest rates like small caps and real estate, which underperformed compared to large cap companies.

While US, Japanese, and European markets struggled, cheaper markets (P/E as basis) like China and the UK performed better. China's market showed improvement due to stronger economic growth, government support for the stock market, and a slight thawing of US-China relations. However, challenges remain, especially in the real estate sector.

The UK stock market thrived in April - hitting all time high, driven by energy and commodity companies, ending the month as the top-performing market with a 2.4% gain. In Asia, Japanese stocks faced challenges, with the Nikkei 225 down by 4.9% after a strong first quarter.

Despite the equity downturn in some regions, India's market continued its upward trend, with the Nifty 50 gaining 1.2% for the third consecutive month, led by strong performances in the banking and auto sectors.

Commodity prices benefited from a resilient economic environment and concerns about escalating tensions in the Middle East, emerging as the top-performing asset class for the month.

Inflation Pushes back Rate Cut Expectations.

As U.S. inflation concerns intensified, bond yields surged in recent weeks, wiping out all gains previously accrued. The yield on the benchmark 10-year note has soared by 80 basis points this year alone, reaching 4.70% by month's end, marking a five-month high. Futures markets now reflect a stark shift in investor expectations, with projections suggesting the Federal Reserve may only enact a modest 35 basis points in rate cuts this year, a significant departure from the over 150 points anticipated at the outset of 2024.

Earnings season: Emphasis on forward-looking insights

According to FactSet, both the percentage of S&P 500 companies reporting positive earnings surprises and the magnitude of these surprises are exceeding their 10-year averages. However, the market's initial reaction to the Q1 earnings season with quarterly reports from JPMorgan, Citigroup, Wells Fargo and BlackRock was cold. One of the main concerns seems to stem from the guidance provided, particularly by JPMorgan, which analysts perceived as overly cautious. BlackRock achieved a milestone in the first quarter with assets reaching a record $10.5 trillion but its share price reaction failed to match same.

Regarding the Magnificent 7 stocks, their earnings announcements caused significant impact on the stock market. The market reaction to Google parent Alphabet, Apple, Microsoft, and Amazon was largely as anticipated, reflecting the already high expectations for these companies. Worth noting, Apple even raised its cash dividend by 4% and approved an additional share buyback program of $110 billion. Meta reported nearly a 50% annual earnings growth, but its stock fell by over 15% due to uncertainty of the timing about when significant capital expenditures on AI will translate into substantial profits. Conversely, despite falling short on revenue and earnings, peer Tesla surged by double digits following its announcement of accelerated plans for launching new electric vehicles, including more affordable models. This serves as a clear reminder that in today's market, companies are valued based on their potential future earnings rather than solely on their historical performance.

All eyes will be on Nvidia’s earnings this month…

Bitcoin: Bogged by Setbacks

April proved to be a challenging month for cryptocurrencies, marked by Bitcoin's decline of approximately 15% as the positive momentum from previous months faded. Bitcoin experienced its fourth halving on 19th April, which initially propelled its price above $67,000 before losing steam. Several factors contributed to this reversal, including shifts in rate-cut expectations, geopolitical tensions, and a slowdown in spot bitcoin ETF flows.

Despite these challenges, April concluded on a positive note with the launch of six spot crypto-based ETFs trading in Hong Kong as from 30th April, following regulatory approval.

Commodities: Zinc Taking the Lead

Many commodities experienced price gains last month, with zinc notably leading the way with a 20% jump. Industrial metals such as zinc, copper, nickel, aluminum, and lead are trending upward boosted by higher demand from China coupled with supply limitations from mining activities. ?The global bull run on Gold persisted as investors sought the safe haven amid concerns about escalating conflict in the Middle East and expectations of interest rate cuts by the U.S. Federal Reserve. Moreover, China continued increasing its gold reserves. Gold touched a record-high intraday price of $2,431.55 per ounce on 12th April.

?As regards soft commodities, coffee prices surged by 17% last month as production failed to keep up with consumption levels over the past two years, largely due to cyclical weather patterns and climate change impacts. Reduced suitable land for coffee cultivation has challenged growers' livelihoods, leading to higher prices for consumers. Cocoa prices reached a peak of $11,722 but later lost momentum, ending the month with a modest increase.

?Yen's Dance with Dollars

After Japan's "lost decades" post the 1990s asset bubble collapse, Tokyo's benchmark index surged by 28.2% last year, seemingly outpacing the US's S&P 500. However, after factoring in the yen's depreciation against the dollar, the actual gain was only 20.6%.

In April, Japanese equities retreated, with the Nikkei 225 dropping almost -4.9% for the month. Widening interest rate gaps between Japan and other developed markets pressured the yen, raising concerns about imported inflation weakening domestic demand.

The yen has been steadily declining for over three years, losing over a third of its value since 2021. During the month, the yen hit a 31-year low against the dollar, sinking to 160.17 before recovering slightly to 155.01 per dollar. Speculation arose about Japanese authorities intervening to stabilize the currency.

Caution is advisable in the near-term due to the rapid market rally and stretched valuations of many large companies, especially those in the Nikkei 225 index. Ongoing currency and monetary policy developments suggest the yen's weakening trend may persist, despite the Bank of Japan's recent rate hike – its first in 17 years – keeping Japan as an outlier in the global economy.