April Market Commentary

Introduction

Although many of the world’s major economies have struggled to achieve strong growth in recent months, there is a sense that some key markets are starting to turn a corner.

The worst of the inflation crisis, for instance, seems to be behind us, and central banks that had been hiking interest rates are now keeping them on hold, prompting debate about how quickly they will start coming down.

As always, let’s take a closer at what’s going on in key markets worldwide.

UK

The UK economy returned to growth in January, after slipping into recession in the second half of 2023, with gross domestic product rising by 0.2%. There was further good economic news with data showing that the rate of inflation fell from 4% to 3.4% in February. This means that costs are rising at their slowest pace since September 2021.

The Bank of England’s Monetary Policy Committee (MPC) has raised interest rates 14 times since December 2021 in a bid to tackle soaring inflation. But now that inflation is falling, the MPC has changed course, most recently keeping interest rates on hold at 5.25% for the fifth time in a row.

Andrew Bailey, the Governor of the Bank of England, responded to the latest announcement by stating that while “things are moving in the right direction”, it is not yet time to cut rates.

Prime Minister Rishi Sunak has welcomed the latest data, telling BBC News that 2024 will “prove to be the year that the economy bounces back” and that the UK has “turned a corner after the shocks of the past few years”.

March saw Chancellor of the Exchequer Jeremy Hunt deliver his Spring Budget, which was surprisingly short of eye-catching, headline-grabbing policies. The Budget was accompanied by forecasts from the Office for Budget Responsibility (OBR), which believes that the UK economy will grow by 0.8% in 2024 and 1.9% in 2025. The OBR also expects inflation to fall below the Bank of England’s target of 2% by the end of June and fall to 1.5% next year.

Despite the positive data, it was a mixed picture in the retail sector, with the Office for National Statistics reporting that sales volumes were flat in February 2024, following an increase of 3.6% in January.

Meanwhile, many prominent high street names have been hitting the headlines for the wrong reasons. John Lewis, for example, has suggested that more jobs could be cut this year as part of a cost-cutting strategy, despite posting pre-tax profits of £56m. In addition, high street fashion chain Ted Baker is set to be put into administration, which means hundreds of jobs are at risk.

Elsewhere, pizza chain Papa Johns has confirmed that 43 of its 450 UK restaurants are to close, and Revolution Bars is reportedly planning to close about a quarter of its outlets. In last month’s Market Commentary, we reported that electronics retailer Currys is reportedly set to be taken over by Chinese e-commerce group JD.com. This option still remains a possibility after Currys rejected several takeover bids from US investment firm Elliott Advisors, on the grounds that it “significantly undervalued” the business.

March also saw Vodafone and Three’s proposed £15bn merger hit a blocker, with the Competition and Markets Authority saying the deal could reduce quality and push up prices for consumers. The regulator is to carry out a detailed investigation into the plan, which would create the biggest mobile network in the UK.

The pound ended March down 0.01% against the dollar, and on the financial markets, the FTSE-100 Index ended the month at 7,952 points, up 4.23% on February.

Europe

Speculation that the European Central Bank (ECB) could soon start cutting interest rates in response to falling inflation continues to swirl.

Pablo Hernandez de Kos, the Governor of the Bank of Spain and a member of the ECB Governing Council, said: “If our macroeconomic forecasts come true in the coming months, it is quite normal that we will soon start cutting rates, and June may be a good date to start.”

Inflation was in double digits in autumn 2022, but has since moderated to 2.6% in February 2024, and is projected to average at 2.3% this year and at 2% in 2025. Interest rates, meanwhile, were left unchanged in the ECB’s March meeting. In addition, the latest ECB data shows that annual pay growth slowed from 4.4% in January to 4.2% in March.

However, ECB President Christine Lagarde has sought to play down speculation and would not be drawn on how many rate cuts could be on the horizon.

“Our decisions will have to remain data dependent and meeting by meeting, responding to new information as it comes in,” she said. “This implies that, even after the first rate cut, we cannot pre-commit to a particular rate path.”

Ms Lagarde stated that there are three criteria that need to be met for the ECB to start cutting rates – a continued fall in inflation, inflation returning to its 2% target and slowing wage growth.

“If these data reveal a sufficient degree of alignment between the path of underlying inflation and our projections, and assuming transmission remains strong, we will be able to move into the dialling back phase of our policy cycle and make policy less restrictive,” Ms Lagarde added.

The import and export market appears to be a notable bright spot for Europe’s economy right now, and the eurozone’s monthly trade surplus hit a record high of €27bn in January. This was fuelled largely by a 2.1% increase in exports when compared with the previous month, although imports into the bloc fell by 4% month-on-month.

With inflation coming down and the possibility of interest rate cuts, confidence in the eurozone economy is improving. The latest data from the European Commission showed that business and consumer confidence rose from 95.5 in February to 96.3 in March, which was in line with expectations.

However, economic circumstances vary considerably across individual member states. In Germany, for example, the Bundesbank is predicting that gross domestic product will decline again slightly in the first three months of 2024, partly because of reduced domestic and foreign demand for German industrial products.

Germany’s economy contracted by 0.3% in 2023, and according to joint research by five think tanks (DIW, Ifo, IfW Kiel, IWH and RWI), gross domestic product will go up by just 0.1% this year.

Stefan Kooths from IfW Kiel said: “Cyclical and structural factors are overlapping in the sluggish overall economic development. Although a recovery is likely to set in from the spring, the overall momentum will not be too strong.”

By contrast, Spain saw a 0.6% increase in gross domestic product in the final quarter of 2023, according to the National Statistics Institute, when compared with the previous three months.

In addition, Ireland’s domestic economy has been tipped to see solid growth over the next two years thanks to rising wages and falling inflation. According to the Economic and Social Research Institute, modified domestic demand – a measure that excludes the influence of multinational companies – will grow by 2.3% in 2024 and 2.5% in 2025. This compares with just 0.5% in 2023, when spending and investment was hit by inflation and higher interest rates.

The forecast comes amid a period of change for Ireland, as Simon Harris is replacing Leo Varadkar as leader of Fine Gael and Taoiseach, after Mr Varadkar announced he is standing down for “personal and political” reasons.

In other political news, Portugal’s President Marcelo Rebelo de Sousa has invited Luis Montenegro to form a minority government, after the Democratic Alliance fell short of winning a majority in recent elections.

A statement issued by the presidential administration said: “With the Democratic Alliance winning the elections in terms of mandates and votes, and having the Secretary General of the Socialist Party confirming that he would be leader of the opposition, the President of the Republic decided to nominate Dr Luís Montenegro as Prime Minister.”

In business news, German food delivery company HelloFresh confirmed it has downgraded its earnings forecast for the year from £484m to between £298m and £341m. This sent shares in the company plummeting by over 40%. Meanwhile, Italian luxury fashion house Gucci has predicted a 20% fall in sales in the first quarter of 2024, partly because of a slump in sales in the Asia-Pacific region.

On the financial markets, Germany’s DAX index rose by 4.61% in March to end the month at 18,492 points. Meanwhile, the French CAC 40 index rose by 3.51% to end at 8,205 points.

US

March saw final confirmation that US President Joe Biden would come up against his predecessor Donald Trump in this year’s presidential election. This is the first rematch in a presidential election for seven decades. The 2024 election looks set to be a fiery and hard-fought affair, as Mr Biden repeatedly criticised Mr Trump in his State of the Union address, in particular over the Capitol riot of January 6th 2021.

Mr Biden will be seeking to talk up his economic track record before voters go to the polls, especially as the US Federal Reserve has upgraded its growth forecast for 2024 from 1.4% to 2.1%, while Goldman Sachs is predicting growth of 2.7%. The Fed also expects to see inflation fall to 2.4% by the end of this year, close to its target of 2%. Inflation was 3.1% in January 2024 and rose slightly to 3.2% in February.

Since inflation is moderating, the Fed has kept its key interest rate on hold at 5.25%-5.5% and is confident rates will come down before the end of the year. Meanwhile, employers added 275,000 jobs in February, according to the US Labor Department, although the unemployment rate crept up slightly from 3.7% to 3.9%.

Despite the improving picture, policymakers are unlikely to make drastic changes in the near future. Jerome Powell, Chairman of the Fed, said: “We want to be careful and fortunately with the economy growing, the labour market strong and inflation coming down, we can be.”

However, the recent collapse of the Francis Scott Key Bridge in Baltimore could have a knock-on effect on some parts of the economy in the US and more widely. More than 47m tonnes of foreign cargo passed through the Port of Baltimore last year, and it is the busiest port in the US for car exports. However, maritime traffic was suspended after a container ship crashed into one of the bridge’s support columns and caused it to collapse.

Speaking to BBC News, Marco Forgione, Director General of The Institute of Export and International Trade, believes the suspension of traffic through the port could have a “significant ripple effect on global supply chains”.

In the business sector, consumer goods giant Unilever has confirmed it is restructuring its business over the next two years in order to become a “simpler, more focused” company. As part of the move, its ice cream unit, which includes popular brands such as Magnum and Ben & Jerry’s, will be separated from the main business.

Meanwhile, new regulations on vehicle exhaust emissions are to be introduced by the US government, as part of a wider effort to speed up the adoption of electric cars across the country. President Biden wants 56% of all new US vehicles sold to be electric by 2032 in order to reduce harmful emissions and help tackle climate change.

Elsewhere, social media company Reddit has floated shares on the New York Stock Exchange. Shares rose by 48% in their first day of trading, in what was one of the first major technology initial public offerings of 2024. However, the move has proved controversial, with many users arguing the flotation will change the platform for the worse.

Another company to make its debut on the stock market was Donald Trump’s media company, Trump Media and Technology Group, which gained a market value of more than $9bn in early trading.

On the financial markets, the Dow Jones rose by 2.08% to end the month at 30,807, while the more broadly-based S&P 500 index went up by 3.10% to end at 5,254.

Far East

China’s government has confirmed it is aiming to see economic growth of around 5% this year, following several difficult years. Speaking at the opening of the National People’s Congress, Premier Li Qiang acknowledged that many of the problems in China’s economy had not yet been resolved. However, he hopes measures such as strengthening the regulation of financial markets and stepping up research in new technologies will help to turn the situation around.

Premier Li also outlined steps to tackle ongoing problems in China’s beleaguered real estate sector, which saw a 29.3% fall in new property sales in January and February 2024, when compared to the first two months of 2023. Official figures also showed that property investment fell by 9% during this period, compared with 5.7% a year earlier.

“Risks and potential dangers in real estate, local government debt, and small and medium financial institutions were acute in some areas,” he said. “Under these circumstances, we faced considerably more dilemmas in making policy decisions and doing our work.”

Nothing symbolises the ongoing problems in China’s real estate market better than the continuing saga of Chinese property giant Evergrande. Founder of the business Hui Ka Yan has been accused of inflating revenues by £61.6bn in the two years before it defaulted on its debt. Meanwhile, Evergrande’s mainland business Hengda Real Estate has been heavily fined by China’s financial markets regulator.

Another ongoing saga has been thorny diplomatic relations with the West over the last few years. The US has launched an investigation amid concerns that tech-connected cars manufactured in China could be remotely controlled or gather personal data, and therefore pose a possible national security risk.

The US, alongside the UK, has also accused China of a state-run hacking operation, and British Prime Minister Rishi Sunak has described the nation as the “greatest state-based threat” to the UK’s economic security. In addition, a proposed ban on TikTok in the US has angered China, with Foreign Ministry Spokesperson Wang Wenbin saying: “In the end, this will inevitably come back to bite the United States itself.”

Mr Wang insisted there is no evidence that TikTok threatens national security and accused the US of “bullying behaviour”. He added that the possible ban “disrupts companies’ normal business activity, damages the confidence of international investors in the investment environment and damages the normal international economic and trade order”.

Perhaps as a result of ongoing diplomatic tensions, the amount of trade between the US and China fell by almost a fifth last year. However, US Trade Representative Katherine Tai believes this isn’t “necessarily negative”, telling BBC News that it “could be a positive indication of diversification on both sides”.

In China’s tech sector, smartphone maker Xiaomi has entered the electric vehicle industry, in a move that puts it in direct competition with the likes of BYD and Tesla. Meanwhile, data from research firm Counterpoint has found that sales of Apple’s iPhone in China have fallen by 24% in the first six weeks of 2024, year-on-year. By contrast, Chinese tech company Huawei saw a 64% surge in domestic sales.

In Japan, revised economic figures showed that the country avoided slipping into a technical recession last year. Data showed that gross domestic product was 0.4% higher in the final quarter of 2023, when compared with the last three months of 2022. This came after official data showed an increase in the amount of money that companies are investing in their businesses.

Meanwhile, the Bank of Japan has increased its key interest rate from -0.1% to a range of 0%-0.1%. This is the first rise in the cost of borrowing in 17 years and came after Japan’s biggest companies agreed to increase salaries by 5.28% in order to help people cope with rising living costs.

The rate hike has been welcomed by Masakazu Tokura, Chairman of business lobby group Keidanren, who described it as an “appropriate policy decision at the appropriate time”.

“I think the BoJ has caught the indications that a virtuous cycle between wages and prices has started,” he commented.

Ken Kobayashi, Chairman of the Japan Chamber of Commerce and Industry, added: “Moderate price increases are favourable for the economy as a whole, and we like the fact that the revision was conducted with the 2% price stability target in sight.”

There was good news in the export market in particular, as official data showed Japan’s exports went up by 7.8% year-on-year. This was the third consecutive month of growth and was driven by strong demand for electrical machinery and cars. Notably, exports to the US went up by 18%, while exports to the EU rose by nearly 16%.

These figures could be boosted further in the coming years after Japan’s cabinet approved the export of new fighter jets. The jets are currently being developed in partnership with the UK and Italy and are expected to be deployed by 2035.

Commenting on the move, government spokesman Yoshimasa Hayashi said: “The plan to make fighter jets with capabilities essential for the security of our nation must be realised to ensure that our nation’s defences won’t be compromised.” However, Defence Minister Minoru Kihara has insisted that Japan remains committed to the “basic philosophy of a pacifist nation”.

The export market is also booming in neighbouring South Korea, where strong ship and semiconductor sales contributed to an 11.2% increase in exports in the first 20 days of March year-on-year. Exports to the US rose by 18.2%, while there was a 16.6% upturn in shipments to Vietnam.

Meanwhile, the European Union has confirmed that South Korea is to join its research and innovation scheme Horizon Europe. Following ratification of the agreement, the country will be able to take part in the scheme from next year and access EU funding for projects designed to address challenges such as climate, energy and the digital economy.

On the financial markets, Hong Kong’s Hang Seng index rose by 0.18% to end March at 16,541, while Japan’s Nikkei index rose by 1.15% to 40,369.

Emerging markets

India’s impressive economic growth continued towards the end of last year, with gross domestic product growing by 8.4% in the final quarter of 2023. This is very good news for the Indian government ahead of this year’s general election, and was hailed by Prime Minister Narendra Modi as a sign of the “strength of the Indian economy and its potential”.

Indeed, the International Monetary Fund is predicting that India’s economy will grow by 6.5% this year and overtake Japan and Germany as the third biggest economy in the world in the next few years.

The surge in economic output has been attributed in part to the impressive performance of the manufacturing sector, as it expanded by 11.6% in Q4 2023. The industry received a further boost in March when the Indian government approved the construction of three new semiconductor plants.

Furthermore, the latest HSBC Flash India Composite PMI Output Index credited the manufacturing sector with helping to drive business activity in India to an eight-month high in March. “New orders rose at a faster pace than in the previous month, and within that both domestic and export orders showed improved vigour,” said Pranjul Bhandari, Chief India Economist at HSBC.

Meanwhile, the Economist Intelligence Unit (EIU) has rated India as one of the fastest-improving business environments in the world, along with Greece and Argentina. The EIU described India as “the only single-country market that offers a potential scale comparable to that of China”, adding that its “youthful demographic profile promises both strong demand and good labour availability”.

The EIU is predicting rapid economic growth between now and 2028, driven by increased foreign direct investment in India’s manufacturing sector “as firms look to diversify their supply chains away from China”.

This could be fuelled partly by a new free trade agreement that India has signed with Norway, Switzerland, Iceland and Liechtenstein, who are collectively known as the European Free Trade Association (EFTA) states. Narendra Modi described this as a “landmark pact” which “underlines our commitment to boosting economic progress and creating opportunities for our youth”.

“The times ahead will bring more prosperity and mutual growth as we strengthen our bonds with EFTA nations,” he said.

Federal Councillor Guy Parmelin, speaking on behalf of the EFTA member states, added that the deal gives EFTA countries “access to a major growth market”.

“Our companies strive to diversify their supply chains while rendering them more resilient,” he said. “India, in return, will attract more foreign investment from EFTA, which will ultimately translate into an increase in good jobs.”

Brazil is another emerging market that is performing above expectations, with official figures showing that its economy grew by 2.9% last year, partly due to the strong performance of its agriculture, industrial and service sectors.

In sanction-hit Russia, Vladimir Putin secured a landslide election victory, which was widely criticised by western nations. The US, for instance, said the election was “obviously not free nor fair”, while the UK said it showed the “depth of repression under President Putin’s regime”.

Many overseas companies have pulled out of Russia in response to the country’s invasion of Ukraine. According to Russia’s RBC Daily, departing businesses have paid 35.7bn rubles to Russia’s budget as of March 15, which it says is 17 times the 2.1bn rubles Russia had expected for the whole of 2024.

Meanwhile, the Wall Street Journal has reported that banks in Austria, Turkey and the United Arab Emirates are working to reduce their transactions with Moscow due to pressure from the US Treasury. The department has been granted the power to pursue foreign banks that facilitate transactions with Russia, which could see them lose access to correspondent US banks.

Speaking to Reuters, Deputy Treasury Secretary Wally Adeyemo said: “Even though they may do some business with Russia, it pales in comparison to the amount of business they do with the United States or the business they do in the dollar.”

On the financial markets, India’s BSE Sensex index rose by 1.59% to end at 73,651 points. Russia’s MOEX index went up by 2.02% to close at 3,332 points, while Brazil’s Bovespa index fell by 0.71 points to end the month at 128,106 points.

And finally…

Trains can inspire huge levels of devotion. But one Chiltern Railways employee is so passionate about the network that she’s named herself after her favourite London station.

You might think that Victoria would be the obvious choice, but Rehana Khawaja has in fact added Marylebone to her name, as she says the station is “a huge part” of her life.

On the subject of names, Compare the Market has gone through baby name data to see which ones have become trendy in the UK over the last decade. Saint topped the list for boys, as it has increased by 1,867% over the last ten years, while Harper has soared by 3,424% to take the top spot for girls.

Saint is, of course, one of Kim Kardashian’s children, while Harper is the name of David and Victoria Beckham’s daughter, so it’s clear that celebs are continuing to influence some of the biggest decisions we’ll ever have to make.

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