Q1 2024 review: Global markets maintain upward trajectory
Global markets sustained their upward trajectory in March, with global stocks delivering a 3.6% return to UK investors, contributing to a quarter where the total return reached 9.4%.
Momentum was underpinned by robust economic data, particularly the outperformance of the US economy in 2023, which surpassed expectations due to growth in consumer and government spending.
A significant driver of the strong Q1 performance was the remarkable growth of large technology and semiconductor stocks. Notably, the Japanese stock market saw a substantial rise of 17%, while the US market recorded a 10.2% increase. However, the UK, which had previously lagged behind through the first two months of 2024, emerged as the top-performing market in March, recording a 4.2% rise.
Bond yields rose rapidly, with the UK 10-year yield up 0.44% as expectations for interest rate cuts were pushed back. However the rate fell back 0.15% in March amid the ‘Goldilocks’ (neither too hot nor too cold) environment.
Energy prices climbed over the quarter, with oil rising 13.4% as demand firmed, aided by the Chinese economy showing shoots of recovery. However, a mention has to go to Bitcoin: the cryptocurrency rallied 68.7% over the quarter (hitting an all-time high) as a range of tracking ETFs were approved in the US in a move expected to boost investing demand.
Assets in focus
Bond yields
Past performance is not a reliable indicator of current or future returns. Source: Fundment
Areas to watch
Inflation data continues to generally cool, however most economies are still seeing headline rates well above central bank targets, with a risk they become embedded.
Given that consumer spending constitutes around 70% of US GDP growth, Personal income and Spending should be monitored to assess whether the consumer remains the main driver of growth.
The Japanese economic renaissance continues unabated, with observers keen to see the impact of interest rate hikes on domestic inflation and growth
The Chinese economy has struggled recently but data shows improvement which, if sustained, could prove to be a boon to emerging market stocks.
News
UK inflation dips; confidence sticks
UK inflation as measured by the Consumer Prices Index dropped to 3.4% year-on-year in February, from 4% growth previously, with the core reading also coming in below expectations.
The Chancellor announced a pre-election Budget with a headline grabbing 2% cut in National Insurance tax, however a range of other tax raising measures to minimise the impact on public finances were also announced.
The Composite PMI confidence survey remained steady at 52.9 in March, with new order levels growing in the manufacturing sector. However prices paid also firmed after a period of decline.
US runs hot; rates steady
Inflation in the US rose again to 3.2% year-on-year (from 3.1%), with the monthly core reading rising 0.4%, as the economy continued to run hotter than the Federal Reserve would like.
The Fed kept rates in a range of 5.25-5.5% while signalling it expects three rate cuts this year (from four previously), with the economy and inflation remaining strong.
The ISM Manufacturing Index rebounded to 50.3 in March – a first positive reading since September 2022 – as production rebounded amid stronger demand, while input costs also rose.
China reflects on data ‘mixed bag’
Industrial production rose 7% year-on-year in February, the fastest pace in two years, while retail sales declined to 5.3% growth, in a mixed bag of economic data. However, it did indicate that the important manufacturing sector could be recovering.
The stock of outstanding yuan loans grew 9.7% in February from a year earlier, the slowest pace since records began in 2003, as borrowing demand waned despite stimulus measures from the central bank.
The official Manufacturing PMI confidence indicator rose to 50.8 in March from 49.1 in February, the first positive reading in five months, while the Services reading also hit the highest reading in eight months.
Eurozone consumer confidence soars
Eurozone consumer confidence rose to its highest level since February 2022 as optimism around the economic outlook brightened while inflation pressures abated.
The ECB kept rates steady at 4% at the latest meeting, with board members torn between stubborn inflation readings and a range of signs that price shocks are receding.
The Composite PMI confidence indicator rose to a nine-month high of 49.9 in March, with both the services and manufacturing sectors improving. However output falls in France and Germany pointed to an uneven economic picture.
And finally… elsewhere:
Japanese GDP grew 0.4% year-on-year in Q4, well ahead of expectations of a 0.4% decline, while recent inflation and wage growth data has remained robust.
The Bank of Japan subsequently raised the key benchmark rate above zero for the first time since 2016 - a first hike for 17 years - as the era of deflation appears to finally have been overcome.