Monthly market update
April 2009 - Markets overview
Cash
Sterling: UK interest rates
were left unchanged at 0.5% at both the April and May meetings of
the Monetary Policy Committee. Annual UK inflation turned negative
for the first time since 1960 according to the RPI measure which
fell to -0.6% in March. The CPI number fell to 2.9%, still well
ahead of the 2% target, and this too is expected to fall in the
months to come. Sterling interbank lending rates have also
continued to fall, reflecting the calmer mood which has descended
across all asset classes as economic and corporate news flow has
improved. Participants in the sterling cash markets were keen
observers of Alistair Darling's Budget which forecast record levels
of borrowing expected to peak at£1.4 trillion by 2014. This news
has kept sterling under pressure in FX markets.
US dollar: In the US, the
Federal Open Market Committee maintained its target range for
interest rates of 0% to 0.25% and re emphasised its policy to focus
on credit easing. The statement which followed the committee's
meeting in April advised the US economy had continued to contract
since it last met in March, though the pace of contraction appeared
to be somewhat slower. Household spending was showing signs of
stabilising but remains constrained by ongoing job losses, lower
housing wealth, and tight credit. The committee commented it
expected economic activity to remain weak for a time.
Bonds
Sterling: Bond markets appear
to have given the UK government the benefit of the doubt following
the Budget statement in April; however, there is no doubt they were
unsettled by the news from the Chancellor that gilt issuance in
2009 will be £220bn. Gilt prices have fallen and this is evidenced
by a rise of 34 basis points in the yield of the benchmark 10-year
bond. Investor appetite for investment grade paper remains unabated
with new issues being over subscribed in the primary market, often
many times over. Institutional investors are capturing the vast
majority of the new issues market leaving unfortunate retail
investors to trade at the margin.
US dollar: 10-year government
bond yields have also risen in the US - a 46 basis point climb has
left the bond yielding 3.12% at the end of April. Corporate bond
markets have continued to thaw despite worries associated with the
stress tests of US commercial banks, Chrysler filing for bankruptcy
and the news US GDP contracted by an annualised rate of 6.1% in the
first quarter. This figure means the US has suffered its worst
6-month GDP contraction for over 60 years. The new issue market in
the US is also very active and support is such that companies with
lower credit ratings are able to tap demand.
Property
(Sterling and US dollar):
Over the longer term, 70% of the total return from UK commercial
property investing is derived from income -thus the maintenance of
a strong revenue stream is very important. More and more landlords
are permitting their tenants to move to monthly rental payments
-this is advantageous for tenants in the current environment and
also allows landlords to identify tenant difficulties at an earlier
stage. The near-term investment outlook for commercial property
remains difficult, however, the medium to longer-term outlook is
more favourable. The volume of new stock due to complete over the
next few years is significantly reduced due to the number of new
developments abandoned or mothballed as the credit crisis took
hold. Re-emerging demand may meet supply constraints to the benefit
of investors.
Equities
(Sterling and US dollar): The
sharp rally in equity markets which began in early March continued
apace in April. US stockmarkets had their best month since March
2000 and have risen by over 30%from their March lows. In the UK,
the FTSE All Share index rose by 9.5% and the key French and German
indices returned 12.6% and 16.8% respectively in April. Developing
markets also delivered very robust returns with the MSCI Emerging
Markets (US$) index rising by 16.3%. The sustainability of this
rally has been called into question, particularly as financials are
at the head of the pack and it would be highly unusual for a sector
which takes an economy into recession to lead it out.
Notwithstanding this, it is clear a level of confidence has
returned in the wake of the rate of decline in leading indicators
slowing. Given how far equity markets have moved in recent weeks,
it would not be surprising to see some profit taking as investors
pause for breath and wait for further evidence of improving
economic conditions and how this will impact earnings forecasts for
2010.
Alternative investments (Sterling and US
dollar)
Hedge funds: The HFRX Global
Hedge Fund GBP index climbed 1.55% in April, as hedge fund managers
were able to capture returns for investors, leaving the index
up2.37% in 2009 to date. Emerging market-bias strategies and
convertible arbitrage managers have delivered strong returns,
however, managers holding short equity positions have been hit hard
by the recent rally. The industry is reporting improving trends and
fund of hedge funds managers are gaining additional capacity as
previously hard closed funds are opening up to both new and
existing investors. Sentiment towards the asset class remains
broadly negative and it is apparent hedge fund practitioners are
re-evaluating how they and their industry can emerge from the
events of the last 12 months.
Commodities: World trade is
recovering as evidenced by the10.6% rise in the Baltic Dry Index in
April. This index is up 66.9% over the last 3 months and 130.7%
year to date. Industrial production in both Korea and Taiwan
improved significantly in March as de-stocking reduced inventory
levels and prompted an increase in activity. This trend applies to
a number of the Asia Pacific economies and has boosted demand for
raw materials. The rise in the price of oil reflects this trend
with the WTI barrel price up 2.9% in April, bringing the year to
date rise up to 14.6%. The shift in investor sentiment has resulted
in a further fall in the price of gold.
World markets
|
Index |
Price |
Up / down on month |
| FTSE 100 |
4,243.71 |
Up |
| DJ Ind. Average |
8,168.12 |
Up
|
| S&P Comp |
872.81 |
Up |
| NASDAQ |
1,394.33 |
Up |
| Nikkei |
8,828.26 |
Up |
| £ / $ |
1.4790 |
Up |
| € / £ |
0.8943 |
Down |
| € / $ |
1.3230 |
Down |
| £ base rate |
0.50% |
Level |
| Brent Crude |
50.80 |
Up |
| Gold |
888.20 |
Down |
Prices quoted as at 30/04/09.
Source: Bloomberg.
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and estimates and opinions given have been obtained from or based
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value of investments. Past performance is not necessarily a guide
to future returns and you may not get back the original amount
invested.
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