Investment Viewpoint: a tough week for markets

Written by Bernard Swords, Chief Investment Officer, and Elizabeth Geoghegan, Head of Fixed Income Strategy

22 April 2024

Simplify the complex with clear and concise market insights direct from our investment experts every week.

Equity markets with Bernard Swords, Chief Investment Officer

Equity markets hit an air pocket last week – what happened? 

  • Fretting about the pathway of US interest rates along with rising tensions in the Middle East unnerved equities. In euro terms, world equities were down over 3%.
  • IT was the worst performing sector with cyclicals and interest rate sensitive sectors also under pressure. As one would expect in falling markets, the defensive sectors held up better. 
  • We are at the very early stages of the results season; financials are the main ones to report so far. The results have been good but have not pushed share prices higher, there could be something of a ‘travel and arrival’ effect.
  • We said over the last few weeks that equity markets seemed to be ignoring what was happening in the interest rate markets in the belief that stronger economic growth, and hence profit growth, would offset any negative impact of ‘higher for longer’ interest rates. 
  • We hit a tipping point in that last week, a strong retail sales figure from the US led to a fall in the equity market. This mood is unlikely to change in the near term and with the uncertainty of developments in the Middle East, it is best to remain cautious but look to see if price falls through up opportunities.
  • Meanwhile, data releases of interest last week included US retail sales which was strong after a couple of months where the reading was slightly below expectations. 
  • In China, data was mixed: first quarter GDP was better than expected. The economy grew by 5.3% year-on-year as investment in infrastructure and capital equipment performed better than expected. 
  • However, China’s monthly data for March was weak. Industrial production growth slowed to 4.5% year-on-year; the growth rate retail sales dropped to 3.1%; and property prices fell 2.2% year-on-year. It is good to see that government policy may be having an effect but the momentum in the economy is poor and you have to wait and see if the policy impulse is strong enough to turn this around.

Fixed Income with Elizabeth Geoghegan, Head of Fixed Income Strategy

It was also another tough week for fixed income markets – why was this and what impact does it have on our strategy? 

  • It was a negative week for fixed income markets. Once again, the sell off was felt most in the US but European fixed income also followed suit. 
  • The trigger was further strong economic data in the form of retail sales which compounded on market reactions to recent upside inflation surprises and employment data. 
  • Markets are now pricing in less than two rate cuts from the Fed by the end of the year, with the narrative of policy rates remaining higher for longer really taking hold.
  • European markets, of course, have a different economic backdrop but last week it seemed that yields really struggled to remain immune to US developments. The German 10-year moved a lot closer to the 2.50% level – the top end of the range over the last five months, in other words, it is back to levels last seen in November. 
  • In contrast to this, corporate bonds continue to perform well with European corporates posting another positive week. 
  • If European yields were to be pulled up in tandem with US yields whilst the European data continues to support further cuts, this could create opportunities to extend duration. However, for now, the momentum behind the US data seems quite strong so one would want to gain comfort that this repricing of rate cut expectations in the US is losing some sort of steam. 
  • This means that for now we are happy to remain neutral on duration from a strategic point of view but slightly underweight relative to the benchmark as the volatility around stronger data remains elevated. 

The week ahead: what to watch out for

This week all eyes will be on the GDP statistics from the which will include the all-important PCE data. PMIs for Europe will also be released – will the better news from Europe continue?
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