Our latest monthly investment update for April 2023 examines how the global investment markets, economy, and commodities perform.
The FTSE 100 index of leading UK company shares closed at the end of March at 7,620.43 points, down 255.85 points or 3.25% during the month.
Volatile quarter
As the year’s first quarter drew to a close, it was an interesting period for global investors.
Markets initially surged, with the S&P 500 index in the US reaching its highest point of the year on 2nd February, followed by the UK’s FTSE 100 index achieving an all-time high on 16th February.
Subsequently, the collapse of three mid-sized US banks and the Swiss giant Credit Suisse caused stock prices to fall. The S&P 500 dropped almost 8% from its February peak to its 13th March low. Similarly, the FTSE 100 dropped 8.8% from its high to its 17th March close.
Despite this, the Nasdaq Composite performed exceptionally well, up over a sixth in Q1, the tech index’s best quarterly result since Q2 2020, when share prices soared after the early pandemic panic.
Additionally, European and large-cap US stocks recorded quarterly returns of more than 7%. The FTSE 100 lagged, returning 2.4%. Nonetheless, this is still higher than its long-term quarterly average.
Avoiding recession
New data from the Office for National Statistics (ONS) has confirmed that the UK economy avoided a recession in the second half of last year, with a growth rate of 0.1% in the fourth quarter.
Although the economy contracted in the year’s third quarter, the latest figures released on Friday confirm no contraction for two consecutive quarters, which is the official definition of a recession.
This news will be a relief to many investors who have been concerned about the UK’s economic performance. While this modest growth may not be cause for celebration, it is preferable to a recession.
The UK remains the only G7 economy that has yet to regain its pre-pandemic GDP level of the fourth quarter of 2019.
ONS director of economic statistics Darren Morgan said:
“The economy performed a little more strongly in the latter half of last year than previously estimated, with later data showing telecommunications, construction and manufacturing all faring better than initially thought in the latest quarter.”
US uptick
US stock futures saw a positive uptick at the end of March following the release of inflation data indicating a continued slowdown in the personal consumption expenditures (PCE) index, which is the Federal Reserve’s preferred measure of inflation.
In February, the “core” PCE, which excludes the more volatile costs of food and energy, increased by 0.3% compared to the previous month and 4.6% compared to last year. While the annual increase was lower than Wall Street’s expectations for a 4.7% rise, it still represented a significant price increase.
This data is significant because higher inflation can lead to higher interest rates, negatively impacting the stock market. However, the lower-than-expected increase in PCE may give the Fed more leeway to keep interest rates lower for longer to support the US economic recovery from the pandemic.
Nonetheless, concerns remain about rising inflation and its potential impact on the economy. Investors will continue to monitor inflation data closely to assess the potential impact on the stock market and the broader economy.
US consumer confidence
According to a closely followed survey, Americans were less confident in March than the previous month due to concerns about a possible recession. The consumer confidence index from the University of Michigan declined from 67.0 in February to 62.0 in March, falling below the preliminary reading of 63.4.
The survey director, Joanne Hsu, stated that the turmoil in the banking sector had a limited impact on consumer sentiment. However, there were “multiple” signs that consumers were increasingly worried about a potential recession.
The decline in sentiment was most significant among lower-income, less-educated, and younger consumers, as well as consumers with top tercile of stock holdings.
UK house prices
The latest data from Nationwide reveals that UK house prices fell in March at the fastest annual rate in 14 years. According to the lender, prices were down by 3.1% compared to the same period last year, marking the largest decline since July 2009.
Nationwide stated that the housing market hit a “turning point” last year, following the financial market turbulence that followed the mini-budget. Since then, the market’s activity has remained subdued.
Nationwide’s Chief Economist, Robert Gardner, suggested that it would be challenging for the market to regain momentum in the near future as household budgets continue to be under pressure from high inflation, and consumer confidence remains weak.
While potential first-time buyers may welcome falling house prices, the reality is that renting has become more expensive for many, and mortgage rates are higher than expected.
UK inflation
Supermarket price inflation in the UK has hit a new record high, causing the average annual household grocery bill to rise by £837, as shoppers resort to visiting multiple supermarkets in search of bargains.
The latest figures from data firm Kantar reveal that year-on-year grocery price increases rose to an all-time high of 17.5% in the four weeks to 19th March, with the prices of eggs, milk, and cheese seeing the fastest pace of increase. According to Kantar, the average annual grocery bill now stands at £5,617.
Stronger Sterling
Pound Sterling emerged as the top-performing currency among developed economies in the first quarter of the year, gaining 2.3% against the US Dollar, ahead of other major currencies in the G10 group.
Over the last month alone, Sterling has increased by 3% against the Dollar, surpassing all emerging market currencies. This trend is noteworthy, given the uncertainty surrounding the outlook for the UK’s economy.
However, recent reports from the Bank of England and the Office for Budget Responsibility (OBR) indicate an improved outlook for the country. The OBR has stated that the UK will avoid a recession this year, boosting market confidence.
UK rate hike
The Bank of England raised interest rates in March by a quarter of a percentage point to 4.25%, following higher-than-expected UK inflation and signs of a more robust economy than anticipated. The Monetary Policy Committee (MPC) voted by a majority of seven to two, marking the 11th consecutive rate hike.
The decision was made after an unexpected jump in the UK’s annual inflation rate in February, which climbed to 10.4% from 10.1% in January, driven by food prices increasing at the fastest pace in 45 years. The Bank’s official target for inflation is 2%.
The Bank also stated that the outlook for the economy had slightly improved, and it was no longer anticipating a technical recession, where the economy shrinks for two consecutive quarters.
Despite the recent turbulence in global financial markets, central banks on both sides of the Atlantic have continued to push ahead with rate increases. The US Federal Reserve also recently raised its benchmark interest rate to a range of 4.75% to 5%.
Given the surprise inflation surge, the MPC acknowledged that City traders had anticipated the rate increase. The committee believes the British economy is holding up better than expected, resulting in the highest borrowing costs since the 2008 banking crash.
Oil production cuts
Saudi Arabia and other OPEC+ oil producers announced at the start of April that they would voluntarily cut their production by approximately 1.15 million barrels per day to support market stability.
It was widely expected that the group would maintain their agreed-upon 2 million bpd cuts at their meeting on Monday, including Saudi Arabia and Russia.
In October of last year, OPEC+ (comprising the Organization of Petroleum Exporting Countries and allies led by Russia) agreed to output cuts of 2 million bpd from November until the end of 2020, much to the displeasure of the United States, as it caused oil prices to increase due to the tighter supply.
The voluntary cuts announced on Sunday are likely an attempt to ease concerns about increasing supply as vaccination efforts continue to expand globally and demand for oil rises.
Market data
On 2nd April, £1 buys $1.2345 or €1.1356. Gold is $1,979.70 an ounce, and UK natural gas futures are 114.77p/therm, down from 119.31p/therm a month earlier. The UK 10-year gilt yield is 3.492%, down from 3.857% a month earlier.
