Duncan Lawrie Online ▼

Posted on: 14 May 2015

Global investment markets had a turbulent April, with economic and political disappointments causing significant investor activity.

In the US, poor GDP results were blamed on bad weather. The US economy expanded just 0.2% in Q1 2015, though when compared with Q1 2014, GDP was 3.1% higher. Against the backdrop of a stronger dollar and cuts in oil and gas investments, weaker economic growth was not surprising.

However, US equities had a positive April, thanks to better-than-expected earnings growth from US companies, and dovish comments from the Federal Reserve about the likely timing of interest rate rises. Some economists also believe that the economic weakness of Q1 will improve this year, thanks to stimulus in China and Europe1.

In Europe, volatility was evident in April: the German equity market fell over 4% due to fears of Greece leaving the Eurozone. The German economy has benefited from the European Central Bank's (ECB) quantitative easing programme. Despite the sell-off in April, German equities are still up 32% in euro terms since October 2014, suggesting some profit taking was due, though investors may be nervous as Greece continues bailout discussions with the IMF.

There was also a broad sell-off in bond markets in April. For some time, yields on European sovereign debt have been historically low. Negative interest rates at the ECB have exacerbated investors' search for yield, causing them to push down the yields on bonds, while banks are facing stricter regulatory requirements, increasing their need for low-risk assets like bonds. Finally, worries about deflation have prompted investors to seek security in bonds. This combination of factors was up-ended in April as risk aversion increased and the oil price climbed 16%.

In the last full month before the General Election, UK equities performed well, up 2.6%, while sterling bounced back by 2% versus the dollar. In the months leading up to the vote, the stock market has performed well relative to the rest of the world, thanks to its global revenue sources.

Looking ahead, some of the fog surrounding investment markets should clear. The new UK Government will begin to lay out its policies in the weeks ahead and the Federal Reserve may move closer to increasing interest rates in the summer, as unemployment trends lower and wages move up.

 

To read more news from The Commentary May 2015 edition please click here



[1] Capital Economics, "Fears of an extended global slowdown look exaggerated", 1st May 2015.

All data has been compiled by Duncan Lawrie from sources believed to be reliable. Full details of sources are available on request.

The comments and figures in this document are generally applicable but you should always take specific advice  to suit your individual circumstances before taking any action. Errors and omissions excepted.

The value of investments and income generated may fall as well as rise, and investors may not get back the  amount invested. Past performance is not a reliable indicator of future results.