“April showers bring May flowers” goes the popular gardening proverb. A turbulent mix of rain and sunshine in April can set the stage for flowers to bloom in May. This April was certainly a mixed month in financial markets, with positive returns in the UK and Europe, flat numbers in the US, and sharp drops in the Far East. The US 10-year Treasury yield, which sets the benchmark for global bond yields, was largely unchanged around 3.5%. Long term inflation expectations inched down from 2.3% to 2.2%.
New data showed the government borrowed less in the last year than forecast, thanks to lower than expected public spending. However, tax revenue also came in lower than forecast, indicating weaker economic performance. Inflation remained above 10%, and wage growth was also high, sending bond yields higher. However, the UK was among the most resilient stock markets, partly thanks to its energy exposure. Our UK equity tracker gave broad exposure to this strength, ending the month up +4%.
HMRC’s figures show that government’s inheritance tax take soared by £1 billion to a record £7.1 billion last year, boosted by fiscal drag from frozen thresholds. It is a pertinent reminder of the benefits of CPN’s specialist IHT portfolio, which can provide inheritance tax relief by investing in AIM-listed stocks. The hospital technology company Craneware was our top performing AIM stock in April, delivering +17%.
The US earnings season kicked off in April with strong numbers from large technology companies like Alphabet and Microsoft. There was also resilience among the consumer staples giants, like Coca Cola and PepsiCo, which used their pricing power to pass increased costs on to consumers. The US stock market was flat in sterling terms due to the stronger pound, but our hedged S&P 500 index neutralised the currency headwind to give clients a +2% return.
Europe posted positive returns in the month, helped by easing inflation. While Eurozone manufacturing sector struggled, resilient consumer spending kept GDP growth positive. Luxury goods giant LVMH – purveyor of Moët champagne, Dior perfume, and Louis Vuitton bags – became the first European company to reach the half a trillion-dollar mark in market cap. LVMH is a top holding in our new L&G Europe ETF, which helped the fund gain +2% in April.
China was the weakest major market in April. The data out of Beijing was positive; GDP growth of 4.5% beat expectations, and retail sales surged 10.6% on the country’s Covid reopening. Despite this, geopolitical tensions sent Chinese-listed stocks down sharply. The telecoms and exporting sectors were particularly badly hit, on reports of punitive new US import regulations.
Away from China, other Emerging Markets had a positive month. India’s stock market rose 4%, but of more long-term importance was the country overtaking China as the world’s most populous state for the first time since the 1700s. India’s population is expected to continue growing before topping out around 1.7 billion people later this century.
The Bank of Japan’s new governor took the helm in early April. Kazuo Ueda faces calls domestically for tighter policy to control inflation, but doves warn that Japan’s inflation is driven by import costs and that higher rates will push the economy into a rut. Absolute levels of inflation in Japan remain tame compared to in the West, at around 3%, but multiple decades of near-zero inflation have left Japan’s consumers unused to rising prices.
Returning to our opening question, will April showers bring May flowers? Valuation multiples are near multi-year lows in most major markets, which bodes well, but in the short term it all depends on how markets determine the forward path of interest rates and inflation. Of course, stock markets are not as predictable as the seasons, but we hope that May will be a fruitful month whatever the weather.