Backdrop

• COVID-19: In the UK, as the vaccination program made further progress and the unlocking process continued, discussions turned to foreign travel and vaccine passports.  There were further concerns about rare blood clots thought be caused by some of the vaccines.  The enormous scale of the health catastrophe in India became evident.
• UK politics and Brexit: The unrest in Northern Ireland continued, fuelled by discontent about the Irish Sea border.  The UK and the EU committed to intensify talks to resolve the issues.  Arlene Foster, DUP leader, resigned.  The government faced questions regarding lobbying by David Cameron on behalf of Greensill Capital, the collapsed financial company.  In addition, an investigation was launched into the donation towards the refurbishment of the Prime Minister’s Downing Street flat.  Critics used the opportunity to declare the return of Tory sleaze.
• Economics:  Data releases continued to signpost a stronger recovery from the pandemic than many had expected.  The vaccine roll-out plan, notably in the UK and the US, has boosted the economic resurgence, opening the door to pent-up expenditure from cash-rich consumers.  Equally, there were further signs of building price pressures, with bottlenecks in the supply chain, together with commodity inflation, coinciding with increased demand.  This was reflected in a rise in producer prices.  China’s economy grew rapidly in the first quarter amid high levels of industrial activity.
• Policy: Despite the burgeoning economic revival, the US Federal Reserve indicated that it has no intention to raise rates, arguing that the recent rise in inflation is transitory and that further progress is needed in job creation.  Indeed, data from Goldman Sachs indicated that the US is currently enjoying its easiest monetary conditions in the modern era. Interest rates in the UK and the EU were also left unchanged.
• US politics:  In a rare moment of collaboration, the US and China agreed to work together on climate issues.  Later, Beijing told Washington and its allies to “stop bossing others around”.  President Biden lay out his plans for more government investment in the form of an “American Families Plan”, funded by tax rises for the wealthy and US corporations.
• Global politics:  Tension mounted as Russia amassed troops on its border with Ukraine.  Russia billed the move as a training exercise in response to “threatening” actions from NATO.  In response, President Biden imposed a new round of sanctions.  In Germany, polls put the Green Party well ahead of Chancellor Merkel’s CDU/CSU bloc, indicating that it has a strong chance of becoming the main political party at the general election in September.

Equity markets

• It was a positive month for equity markets, with bullish sentiment and strong earnings announcements underpinning a rise in index levels.  The US and UK markets were in the vanguard, with both countries seen to benefit from the efficiency of their vaccine roll-outs.  European and Asian equities underperformed, although indices were also firmly in positive territory.  Japan was the outlier and registered a negative month, with a rise in COVID infections and renewed lock-downs weighing upon sentiment.
• Indeed, despite elevated valuation metrics, US stocks continued to climb as many saw no alternative to staying invested.  Other dynamics, such as share buybacks, record levels of margin debt and reduced appetite for shorting by hedge funds (lest they found themselves on the wrong side of the “Reddit” crowd!), bolstered the technical picture.
• Style-wise, value led growth again as investors favoured stocks in sectors such as retail, consumer goods and basic materials that are positioned to benefit from economic reopening.  Banks have also been enjoying the limelight because of the benefit they draw from higher interest rates.  The prospect of higher rates to combat inflationary pressures also depressed growth stocks.

Bond markets

• It was a much better month for bonds after a tricky first quarter.  Indeed, it was the first monthly drop in yields since November last year.
• Modest positive returns were delivered by UK gilts and credit markets, with longer maturities outperforming.
• It is clear that the “hunt-for-yield” dynamic persists, with investors prepared to return to bonds as yields rise to more attractive levels.

Commodity and currency markets

• Commodities soared in April, with the Bloomberg Commodity Index registering its best monthly return since 2014. Copper was one of the best performers and the oil price also rose as last year’s glut has been largely consumed.  Demand from China, government spending on post-pandemic recovery programmes and plans to “go greener” are all laying the foundations for a structural bull market in commodities
• The gold price enjoyed its first month of positive performance this year, helped by the falling US dollar and talk of inflationary pressures.
• In cryptocurrencies, Bitcoin reached an all-time high during the month but subsequently fell back.  Ethereum also reached a record high, notwithstanding a roller-coaster ride along the way.  The IPO of Coinbase was described as a “coming of age moment” for cryptocurrencies.  In a reminder of the energy-hungry requirements of coin mining, as well as its vulnerabilities, a power outage in Xinjiang was blamed for a mid-month plunge in the price of Bitcoin.  A significant proportion of the crypto is mined from this location.