We appear to have entered calmer seas

Equity markets, after a period of consolidation, are back on the front foot, equity investors comforted as the yield curve once again turns positive. Equity markets were encouraged by better than expected Purchasing Manager Surveys for March for both China and the US. Data from Europe remains bleak, the latest Consumer Price inflation came in lower than expectations, possibly further underlying the weakness in that economy. A broad-based rally in the FTSE 100 resulted in a 1% on Tuesday, and this is despite ongoing Brexit uncertainty and only a modest movement in the pound. The pound remains resilient against the US dollar despite the continued uncertainty coming from Westminster.

Commodity prices continue to rise as the price of Brent crude reaches 62 dollars a barrel. Metal and mining companies have been outperforming the broader index.

Days ago, one could find plenty of material to write upon; at this moment in time calm has been restored. Investors seem to be tempted back into the market. Since the start of the year, 2.5bn dollars have come out of Global funds, according to a report on Bloomberg from Global State Street Advisors. However, in March 300 million dollars net went back in. Looking at what sectors have performed in the first quarter, cyclical have outperformed defensives. Information Technology, energy and Consumer Discretionary have been the best performers. Utilities and healthcare the worst. All sectors are up.

The current focus is probably Brexit. The market continues to take the view that it will be all right on the night. European ministers talk openly about the increased possibility of a no deal increasing, they too must internally be worried about that as an outcome, as their economy continues to struggle along. 

April is traditionally a good month for equities, as December is supposed to be. We will soon be entering the earnings season; company expectations have been downgraded from the start of the year, leading to some multiple expansion on valuations. The expectation is that earnings will fall year on year by circa 3%. At the start of the year, that figure was for a q1 3% year on year rise.

Posted on April 2, 2019 .