Risky assets continued to move higher in April. Unprecedented global fiscal stimulus and the vaccine rollout continues to suggest a sharp acceleration in global growth over the next few quarters. US interest rates declined slightly following the sharp increases during the first quarter.
As we moved through April, a slightly more positive picture has emerged on the economic outlook. Even though COVID uncertainty remains high and restrictions remain in many countries with India, Japan and parts of continental Europe re-imposing lockdown measures in April, vaccine rollouts in a number of large developed economies kept up optimism over sustained re-openings later in the year. Leading economic indicators such as purchasing manager indices show that a recovery is well underway. The US added fuel to this recovery fire in March with another large $1.9 trillion fiscal stimulus program while an even larger infrastructure program is being discussed. Central banks in developed markets remain committed to a continuation of easy monetary conditions. Only the Bank of Canada took tentative steps in April to tighten monetary conditions by announcing the tapering of asset purchases.
Equity markets have been reflecting this manic-depressive environment with a weak January, followed by solid gains from February through April. As markets continue to coalesce around the reopening scenario, value stocks have been outperforming growth stocks by wide margins in February and March as these are the stocks expected to benefit from a return to normal social interactions, but momentum shifted back to growth stocks in April. Emerging markets were strong to enter the year but have been falling behind since February when Chinese markets began to reflect concerns over tighter credit and a regulatory pushback against its tech sector. Brazil and India underperformed in March and April respectively as they became new epicenters of the Covid-19 pandemic.
Bond markets have priced in stronger growth and inflation risk. Longer dated nominal yields have been increasing and yield curves have been steepening globally for the year, most notably for the US where this trend has continued through to March, but pressure on yields eased in April.
After a dismal second half of 2020, the US dollar ended its loosing streak at the beginning of the year, a trend that continued up to the end of March but reversed again in April as the Federal Reserve maintained its commitment to loose monetary policy in spite of the strong economic recovery in the US.
Cyclical commodities performed strongly over the year to April, especially energy in anticipation of the strong pent-up demand the global rebound is bringing. Supply chains were already stretched going into 2021 which was exacerbated further by severe winter weather in February and the temporary closure of the Suez Canal in March. The ongoing semiconductor shortage continued to cripple car manufacturing in April.
Mercer's Monthly Market Monitor provides an overview of global financial markets.
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