The day finally came when Theresa May triggered Article 50. The stock market rose, as did the value of the pound. That was interesting in itself as many investors see the FTSE 100’s performance inversely correlated to that of sterling. Will this trigger a slowdown in the UK, stagflation and corporate defections, as some analysts predict? Only time will tell. So much is currently being written on Brexit, if feels hard to add any value in this piece. Reading the tomes that is written on the subject, much of it does seem to be focussed on the potential negatives of Brexit, and very little on the potential opportunities it may also offer.
Equity markets in the US on Wednesday appeared unfazed by two speeches from Federal Reserve members suggesting that there could be four interest rate rises this year, particularly at a time when the market seemed to be starting to price in the probability of only two. The Federal Reserve have been on a path of a more hawkish rhetoric, and more dovish actions, this policy would appear to remain in place to try and ensure the market is not taken by surprise when it does act. Yields on the ten-year US treasury showed little reaction to these hawkish comments. They did however move fractionally higher after a slighter better than expected revision to the fourth quarter US GDP estimate. Growth for the fourth quarter was revised upwards to 2.1% year on year.
The first quarter of the year has raced by, one that so far fulfilled the inbuilt optimism from the start of the year for equity investors. The FTSE 100 with one day to go is up just over 3%. The MSCI All World Index up circa 6% (USD). The S&P 500 higher by close to 5%. Despite Brexit the pound has gained ground against the dollar, however it has lost a little against the euro. The Vix, or fear and greed index, has also fallen modestly. The Federal Reserve has followed through on its pledge to raise interest rates in the first quarter. Despite this improved sentiment towards equities, and the expectation inflationary trends will continue to pick up, yields on the 10 year US treasury have closed the first quarter almost where they started it.
Other signals that offer a confusing picture as to sentiment in the world, commodity prices have fallen since the start of the year, except for gold. Oil is worth noting, as the price has fallen 10% from its highs in recent weeks, having appeared to have stabilised in the mid-$50 range. The dollar has lost ground since the start of the year against the Japanese yen, this is often considered another sign of a move away from riskier assets.
As we enter the second quarter, April is apparently considered a good month for equities. Having been through a few swings, April has also been known to bring showers.