General Trends
Volatile conditions in global markets in April continued to prevail. Equities and emerging markets fell, government bond yields rose, and the U.S. dollar and commodities surged. As seen in February and March, many issues plagued the markets including: concerns about rising inflation and interest rates, trade wars, geopolitical tensions, and political uncertainty.
Volatility of the 30 day VIX futures measured by average true range (ATR), i.e. the maximum difference between intraday high, low and the previous day’s close, subsided in April. The daily ATR was 7% in April, vs 9% in March and below the all-time high of 19% in February.
Equities
Global equities made modest gains in April with rising oil prices that rallied robust demand and Middle East tensions. The second quarter of the year started with a massive rally of European equities, as the FTSE rose more than 6% and bounced back from the gloomy end of Q1. The FTSE index rose as sterling weakened from UK’s disappointing macroeconomic data of 0.1% GDP growth for Q1 2018. Eurozone equities showed positive returns with 4.5% on the MSCI EMU index. Gains were led by the energy sector amid rising oil prices. The telecommunications sector, supported by merger & acquisition activity, performed well. U.S. markets’ performance was more subdued, underperforming in the MSCI World Index. The narrow gain was supported by continued strength in U.S.’ macroeconomic data and cooling trade issues. While Japan joined the April rally closing the month 3.6% higher, the yen weakened against the U.S. dollar amidst reduced geopolitical risk.
Bonds
Easing U.S.-China trade frictions and stable macroeconomic data and corporate earnings reports contributed to improved sentiment and supported risk assets in April. U.S. Treasuries (-1.0%) led global rates higher as UK Gilts (-1.0%), Spanish Bonos (-0.7%), and German Bunds (-0.5%) underperformed, pressuring U.S. investment grade (-0.9%) and EM bonds (-2.7%) even as European (+0.6%) and U.S. (+0.8%) high yield rallied.
Energy
From Energy markets, a powerful breakout in crude oil drove returns. Crude oil was up 5.6% in April—the second consecutive month of gains over 5.0%—as OPEC continued to show production restraint while also hinting of longer-term supply co-operation with non-OPEC producers, specifically Russia. Oil prices were strongly increasing in the wake of the OPEC/non-OPEC deal cuts. The price increase also reflects several other factors including OPEC’s successfulness in restricting supply, a strong world economy and rising Middle East tensions.
Base Metals
Gold was the notable detractor of performance as the precious metal once again failed to break out of its price range, which has lasted since the beginning of the year.
Commodities
Despite U.S. dollar strength, the CRB commodity index rallied +3.4% led by Brent (+8.5%) and WTI (+5.6%) on demand/supply data and rising geopolitical tensions due to the approaching mid-May deadline set by the White House to rework the Iran nuclear deal.
FX
The U.S. dollar rose versus most of the majors, particularly versus the British Pound. Monetary policy was slightly dovish with the BoE, BoC and ECB. In an interview with the BBC, BoE Governor Carney stated that a May hike wasn’t a ‘done deal,’ acknowledging that there are other meetings at which they could act this year. This came as a surprise to the markets which had priced a rate hike in May as a near certainty. The BoC suggested rates may be on hold for some time, stating that they will be guided by incoming data. The ECB surprised the markets, stating that no discussion about monetary policy had taken place, leading market participants to believe that a decision on winding the QE program back would be delayed to July. Subsequently, the GBP, CAD and EUR depreciated on the dovish sentiments.
Sources: Runestone Capital Fund, Altiq Global Fund, Forum Asset Management LLC, Quest Partners LLC, Red Gate Asset Management, AE Capital