Investment Viewpoint: Signs of stability as markets regain footing

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Markets and macro insights with Bernard Swords, Chief Investment Officer

Key takeaways

1. After a weak March – when global equities fell about 5% (EUR) and euro fixed income about 2.5% – markets have stabilised, with equities recovering in early April (up about 1.5% EUR).
2. Geopolitics remains the key risk watch. Reduced shipping through the Strait of Hormuz suggests ongoing energy supply disruption – and this has knock-on effects for oil prices and inflation.
3. The global economy is still providing a supportive foundation. US data (payrolls and core retail sales) suggests resilience, and business activity indicators (ISM manufacturing/services) remain in expansion territory.

What have we seen from markets so far in April? 

• After a difficult March, financial markets have started April on a more positive footing. During March, global equity markets fell by almost 5% in euro terms, while euro area fixed income markets declined by around 2.5%. Since the end of the month, however, markets have shown signs of stabilisation. Global equities have recovered by approximately 1.5% in euro terms, and fixed income markets have steadied.

What is moving markets right now? 

• Geopolitical developments remain an important focus for investors, particularly the ongoing US-Iran conflict. There has been little clarity over the past week, and markets are watching closely to see whether the US-led ceasefire will be renewed. While some shipping traffic has resumed through the Strait of Hormuz, volumes remain well below pre‑conflict levels. As a result, energy supply disruptions are likely to persist for some time, continuing to influence prices and inflation dynamics.

What does the economic data indicate? 

• Against this backdrop, the key support for equity markets continues to be the underlying strength of the global economy. Recent economic data suggests that growth momentum has remained intact through March. In the US, non‑farm payrolls were strong, despite revisions to earlier months, indicating that the labour market remains in reasonable health. Retail sales also exceeded expectations at the core level, suggesting that higher energy prices have not yet had a significant impact on consumer spending. Business sentiment remains robust, with both manufacturing and services activity, as measured by the ISM surveys, still firmly in expansion territory.
• In the euro area, inflation data released last week showed early signs of the impact of higher energy prices. Headline inflation increased by half a percentage point, while encouragingly, core inflation eased slightly to 2.3% year‑on‑year.
• At the start of March, there had been some expectation of a potential European Central Bank (ECB) rate cut later in the year. This has since shifted, with markets now pricing in two, and possibly three, rate hikes. This adjustment has largely already been reflected in bond markets.

Can we expect to see a market leadership shift between sectors? 

• The recent rebound in global equities has been broad‑based, although on a year‑to‑date basis cyclical sectors continue to lead. Looking ahead, as growth moderates from very strong levels and energy prices remain elevated, leadership may begin to shift towards more defensive areas and towards companies with strong structural growth characteristics.
• Within fixed income, sovereign bonds have been under the greatest pressure due to their longer duration and sensitivity to interest rate expectations, while corporate bond spreads have remained relatively stable, supported by strong company fundamentals.

The week ahead: what to watch out for

Looking ahead, developments in the Middle East are likely to remain the main focus for markets, while the economic calendar is lighter than usual. In the euro area, we’ll get Retail Sales and the PMIs (Purchasing Managers’ Index surveys), timely business surveys that provide an early read on economic activity across sectors. In the US, attention will turn to the latest CPI (Consumer Price Index) report, the main measure of consumer inflation, which will help shape expectations for interest rates.