April was another broadly positive month for global equity markets as the widespread rollout of Covid-19 vaccination programmes continued to pick up pace. Contributing to the risk-on sentiment for the month was yet another substantial relief package proposed by President Biden, together with positive economic data coming out of the US. Other news helping to lift investor sentiment came in the form of revised global growth projections, with the IMF revising its 2021 growth forecast from 5.5% to 6%. Locally, the country’s vaccination programme regained momentum after the Johnson & Johnson vaccine was reapproved for distribution, with the government indicating that phase 1 of its vaccination programme is expected to be completed by mid-May.
Looking at global equity market returns (all in US$), the MSCI All Country World Index returned 4.4% for the month. Developed markets outperformed emerging markets, with the MSCI World Index returning 4.7% and the MSCI Emerging Markets Index delivering 2.5%. The Bloomberg Barclays (LON: BARC ) Global Aggregate Bond Index (US$) returned 1.3%, while the EPRA/NAREIT Global Property REIT Index (US$) produced 7.1%.
The spot price of Brent crude oil closed April 5.8% higher from the previous month at around US$66 per barrel. In commodities, the gold price was 5.2% stronger, platinum gained 3.7%, copper 12.4%, aluminium 10.5%, and palladium 13.9% for the month.
Less than a month after issuing a US$2trn infrastructure proposal, President Biden put forward an additional US$1.8trn programme aimed at providing support for children and families. The programme, which is yet to be approved by Congress, will include US$1trn in investments and US$800bn in tax credits and will be largely funded over 15 years by raising taxes on wealthy Americans.
Meanwhile, the Federal Reserve (the Fed) left the target range for its federal funds rate unchanged at 0-0.25% and will continue to purchase bonds at a rate of US$120bn a month. Although investors remained concerned about possible rising inflation, the Fed did not support this view at its policy meeting. Policymakers, however, did note that the effects of the pandemic continue to weigh on the economy and that risks to the outlook remain unchanged.
Turning to economic indicators, investors welcomed the news that the US economy grew by an annualised 6.4% q/q in Q1 2021, above market expectations of a 6.1% expansion and well above the 4.3% recorded in the previous quarter. The government’s acceleration of Covid-19 vaccinations and continued fiscal support in response to the pandemic helped boost economic activity over the quarter.
Optimism surrounding the government’s vaccination rollout helped support market sentiment, with Health Minister Dr Mkhize describing the national picture as being relatively stable as the number of active cases dropped slightly. In other positive news, the local health regulator lifted the temporary suspension of the Johnson & Johnson vaccination, while the number of national vaccination sites was extended to 95. Phase 1 of the rollout is now expected to end in mid-May, which will see an estimated 1.2 million healthcare workers vaccinated. As of the end of April, the country had secured enough vaccines (through agreements with Johnson & Johnson and Pfizer (NYSE: PFE )) for 46 million of its roughly 60 million population.
Turning to economic indicators, South Africa's trade surplus rose to R52.77bn in March from R31.22bn in the previous month, beating market forecasts of R25bn and marking the largest monthly trade surplus on record. Meanwhile, the annual inflation rate rose to 3.2% in March from 2.9% in February, in line with the South African Reserve Bank's target range of 3-6%, while retail sales unexpectedly rebounded in February to 6.9% from two months of contraction amid the relaxation of lockdown restrictions. On the data front, producer inflation hit a near two-year high of 5.2% in March, above market expectations of 4.7%, largely on the back of an increase in prices for food, fuels and metal products.
The FTSE/JSE ALSI returned 1.0% in April. The standout performer was Listed Property ( (SAPY) index) with 11.7%. Resources returned 2.9%, Industrials -1.2% and Financials 1.5%. The FTSE/JSE Capped SWIX All Share Index, which we use as the equity benchmark for most of our client mandates, returned 0.8%. SA bonds were positive at 1.9% (as measured by the FTSE/JSE All Bond Index), SA inflation-linked bonds returned 1.1% and cash (as measured by the STeFI Composite) delivered 0.3%.
Finally, the rand was mixed against the major currencies, gaining 1.7% against the US dollar and 1.4% against the pound sterling, while depreciating 0.7% against the euro.
UK and EUROPE
In the UK, the national lockdown eased further during April as stores, pubs and restaurants began to reopen. Retail sales surged 5.4% in March, significantly beating market forecasts of 1.5%, while the unemployment rate fell to 4.9% (for the three months ending February), below market consensus of 5.1% and supported by the government's furlough scheme. PMI data surprised on the upside, with Manufacturing PMI having increased to 60.7 in April, pointing to the strongest factory growth since July 1994, with Services PMI increasing to 60.1 in April, the largest expansion since August 2014.
In Europe, the Euro Area economy shrank by an annualised 0.6% in Q1 2021, slightly less than forecasts of a 0.7% contraction, however resulting in the region entering a “double-dip” recession after contracting 0.7% in Q4 2020. Among the bloc's largest economies, Germany , Italy and Spain posted negative growth in the first quarter of the year, while France 's economy expanded by 0.4% on the back of the government delaying the imposition of lockdown measures. The ECB left its monetary policy unchanged during its April meeting; however, President Lagarde noted that although inflation had picked up over recent months (up from 1.3% y/y in March to 1.6% y/y in April), underlying price pressures remain subdued in the context of significant economic slack and weak demand. She added that economic activity in the region is likely to rebound firmly over the course of 2021, however, the near-term economic outlook remained uncertain.
CHINA and JAPAN
In China, Sino-US tensions resurfaced after US President Joe Biden took aim at China in his first speech to Congress, pledging to maintain a strong military presence in the Indo-Pacific and promising to boost technological development and trade. The move came just a few days after the US Senate committee backed a bill pressing Beijing on human rights and economic competition.
In other news, President Xi announced that Beijing would start to phase down its coal consumption over the 2026-2030 period, as part of the country’s efforts to reduce climate-warming greenhouse gas emissions. President Xi renewed his pledge to make China carbon neutral by 2060.
Turning to economic indicators, the Chinese economy grew by an annualised 0.6% in Q1 2021, well below market expectations of a 1.5% expansion. Inflation, meanwhile, moved out of negative territory after CPI rose by 0.4% y/y in March 2021. The People's Bank of China kept its benchmark interest rates steady for the twelfth straight month, in line with market consensus, as the economy continues to show signs of a slow- but-steady recovery.
Turning to Japan, Prime Minister Yoshihide Suga declared a state of emergency in Tokyo, Osaka, Kyoto and Hyogo in an effort to curb a surge in new infections during the upcoming Golden Week holidays. The restrictions, which will be in place until 11 May, will include the banning of alcohol from restaurants and bars, the temporary closure of department stores and movie theatres, and the barring of fans from attending sporting fixtures.
Meanwhile, the Bank of Japan kept its key short-term interest rate unchanged at -0.1% during its April meeting, however, lowered its consumer inflation forecast for the current fiscal year from 0.5% to 0.1%. Policymakers also warned of risks to the economic outlook as the COVID-19 pandemic continues to hurt consumption. In other economic news, projected GDP for the current fiscal year was revised marginally higher to 4% from 3.9% in January, while retail sales rose by 5.2% y/y in March 2021, well above market expectations of a 4.7% fall and outpacing the 1.5% drop posted a month earlier.
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