General Market Commentary April

The last fortnight has seen the pound weaken, falling from $1.43 to $1.37, while comments from Bank of England Governor, Mark Carney, dampening down market expectations for a May interest rate rise were corroborated by Friday’s weak GDP figure. Short-term interest rate rises seem to be confined to the US for now and this has prompted an upward move in the share prices of UK listed companies with high US dollar earnings. Compass Group and Experian, both FTSE 100 companies with large US businesses held in the Nexus Portfolios, have seen their share prices rise by around 10% over the last two weeks. Further weakness in the pound (or strength in the dollar) should not be ruled out.

The pound’s profile against the euro is less clear, however. Although the likelihood of a near term UK interest rate rise has decreased, so has the expectation of monetary tightening in the Eurozone. Weaker than expected economic data has pushed out the date for quantitative easing to taper or end, and an interest rate rise is an ever-distant prospect. As a result, the pound is moving broadly sideways against the euro.
US earnings season got underway during the month and comments from Caterpillar suggesting that their better-than-expected first quarter results will be a high-water mark unnerved investors. Stocks rebounded however after a show of resilience from the recently troubled tech sector. Amazon and Netflix, two Portfolio stocks, produced much better than expected results, sending their share prices sharply higher. In both cases, a combination of new subscribers and price rises is moving revenues ahead. Amazon is also the leader in Cloud Infrastructure and movement of IT to the Cloud remains a major technology theme. Meanwhile, Netflix continues to invest heavily in content, with the company expecting to spend up to $8 billion this year.

The main economic news in the UK was the disappointing GDP numbers, with the economy still stuck in the slow lane and only growing by 0.1% in the first quarter. Undoubtedly a good deal of this weakness was weather-related but probably not all of it and a Bank of England rate hike in May is now looking very unlikely. In fact, two weeks ago the markets viewed a rate hike as almost a done deal, but now it is given a less than 20% chance. Not surprisingly, this led to some significant pressure on Sterling which has also not been helped by the latest political developments and the resignation of yet another cabinet minister. By contrast, the US economy remains in good health and grew at a 2.3% annualized rate in Q1. Employment costs also picked up which suggests another interest rate hike will be delivered by the Fed in June. Elsewhere the data remains fairly mixed, especially in the Eurozone.

US 10y yields managed to break above the psychologically important 3% level for the first time since 2014 on the back of resilient US activity data. Initially this caused a ripple through other asset classes but for now this hasn’t proved the major tipping point that some have suggested. The absence of a sharp uptick in inflation should contain the pace at which Treasury yields do rise, preventing a shock to markets.

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The financial advisers trading under Beacon Wealth Management are members of Nexus Global (IFA Network). Nexus Global is a division within Blacktower Financial Management (International) Limited (BFMI). All approved individual members of Nexus Global are Appointed Representatives of BFMI. BFMI is licensed and regulated by the Gibraltar Financial Services Commission and bound by their rules under licence number FSC00805B.