Stock markets enjoyed another positive month in April, building on the first quarter’s positive momentum.
These gains were driven by significant policy shifts from global leaders, particularly central banks. Reacting to the growth challenges of 2018, these institutions have generally moved from restrictive stances to more expansionary policies.
Examples of this include the US Federal Reserve cancelling the three interest rate hikes originally forecast and indicating none are likely in 2019. We have also seen the European Central Bank start a third round of Long-Term Refinancing Operations, offering cheap money to commercial banks on the condition these monies are extended in the form of loans.
China has also played its part, with a significant ramp up in credit issuance in the first quarter. Given Chinese banks are not fully independent of the state, their acceleration in lending activity is certainly an instruction from Beijing, further supporting the case that authorities have moved to a more expansive policy setting.
Given this swift and coherent approach from global central banks, the stage is set for a global growth to accelerate again as we move through the year. This opens the door for a move back to a more restrictive policy setting in 2020 but, for now, equities should continue to benefit from both improving growth and generous policy.
This is not to say equities won’t endure periods of uncertainty in the months ahead. Indeed, after the fantastic run equities have enjoyed in the year to date, we could see markets suffer from either profit taking or sideways drift in the coming weeks and months.
Looking ahead, Japan will have to deal with a consumer tax hike which, at this stage in their recovery, would seem an unnecessary blow to a market attempting to regain its stride.
Meanwhile in Europe, long-term challenges remain, from demographics to a vulnerable banking sector and general political stress. However, the continent’s fortunes are more closely tied to Chinese demand relative to the US. Whether they are buying automobiles, machines or LVMH handbags, a more robust economic showing from China will benefit Europe.
The value of investments can fall and you may get back less than you invested.
If you invest in currencies other than your own, fluctuations in currency value will mean that the value of your investment will move independently of the underlying asset.
The opinions expressed in this document are not necessarily the views held throughout Brewin Dolphin Ltd.