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For professional investors only, not suitable for retail investors.
WHAT NEXT AFTER THE V-SHAPED REBOUND?
Issue #5
April/May 2016
Multi asset views from RLAM
Royal London Asset Management manages £84.5 billion in life insurance, pensions and third party funds*. We have launched six Global Multi Asset Portfolios (GMAPs) across the risk return spectrum with a full tactical asset allocation overlay.
*As at 31/12/2015
This month’s contributors
Trevor Greetham
Head of Multi Asset
Ian Kernohan
Senior Economist
Hiroki Hashimoto
Senior Quantitative Analyst
A recovery in economic data is underpinning the recovery in stock
markets.
The New York regional manufacturing survey has seen its strongest three month
surge since 2009, a pattern echoed at the
national level.
Chinese economic data has also come in strong, with business confidence,
electricity production, trade and money
supply all surprising significantly to the
upside.
The sharp sell-off at the start of the year was followed by an abrupt
rebound as central banks eased policy. The bear case from here has
China weakening its currency again, hurting risky assets for the
third time. We have taken profits from the equity positions we took
during the latest panic but with signs of recovery in the US and
China, we remain constructive and would buy dips over the summer.
Deflationary fears evaporate, again
Every time America thinks the world is strong enough to cope with a rise in the Fed
Funds rate, China lets the steam out by devaluing its currency. With global manufacturing confidence at a low ebb, this provokes a very negative reaction in
financial markets. We bought stocks during the panic last summer and again in
January, lightening exposure as central banks eased and stocks rebounded.
Expect the dollar to rebound as the US resumes hikes
We may be breaking out of this pattern. The last few weeks have seen evidence
of a recovery in global growth. Business surveys have improved markedly in the
US, while a broad range of data in China suggest the stimulus applied after the
stock market crash of 2015 is taking effect. We expect the dollar to rebound as
the market prices US Federal Reserve (Fed) rate hikes back in, especially as on
the other side of the ledger the Bank of Japan (BoJ) and European Central Bank
(ECB) are still in easing mode.
Global growth revival looks more likely; reducing emerging
markets underweight
Stocks are generally volatile over the summer months but we remain constructive
and would buy dips if markets follow their usual seasonal patterns. Growth is
picking up and inflation is low, a combination characterising the equity-friendly
Recovery phase of the Investment Clock. We especially like Europe and Japan,
regions which should benefit from a return of dollar strength. We’ve trimmed
underweights in emerging markets and commodities given the potential for a
synchronised upswing later this year.
Also in this edition
Also in this edition, a special feature on the limits of monetary policy, an update on
the global economic outlook and a table showing cross asset returns.
Focus Chart: US manufacturing surveys are surging
Please visit www.investmentclock.co.uk for up-to-date product information,
thoughts and ideas. For further details, contact: [email protected]
2
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TELLING THE TIME: IN THE RECOVERY PHASE
We employ a model-based framework for fundamental decision making to help us navigate volatile markets and reduce behavioural
biases. The Investment Clock model that links asset returns to different phases of the global business cycle is positive on stocks. We
are in the equity-friendly Recovery phase, characterised by a pick-up in global growth against a low inflation backdrop.
The growth trend is strong; the outlook is recovering
The global unemployment rate continues to fall, indicating that the period of above trend growth that began in 2009 is still
very much in train. The scorecard we use as a lead indicator for global growth has been weak on the back of poor readings
on the manufacturing side but it is starting to improve again with better US data coming in.
Inflation lead indicators point downwards but base effects suggest a rise
The trend in global inflation has been downwards since China’s economy started to slow and commodity prices peaked
from 2010 onwards, although base effects have caused a slight upturn in measured inflation rates this year from near zero
levels. Our inflation scorecard continues to point downwards, primarily due to historic commodity price weakness. We
expect inflation pressures to build as the year progresses but for interest rates to remain low.
Chart 1: Global growth weak but recovering Chart 2: Global inflation troughing on base effects
Source: Growth trend based on global unemployment rate (inverted). Lead indicator includes central bank policy, OECD lead indicators, business confidence and economist GDP forecasts.
Source: Inflation trend based on global consumer price inflation. Lead indicator includes spare capacity, the oil price, surveys of industrial pricing power and economist CPI forecasts.
Chart 3: The Investment Clock Chart 4: Clock indicator in Recovery Phase
Source: RLAM. See “How the Investment Clock Works” later in this report for more details. Source: Growth and inflation in two dimensions over the last 12 months. Yellow circle is current reading. The faint trail is an RLAM projection.
INFLATION RISES
INFLATION FALLS
GR
OW
TH
M
OV
ES
B
ELO
W T
RE
ND
GR
OW
TH
MO
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S A
BO
VE
T
RE
ND
Industrial Metals
Precious Metals
RECOVERY OVERHEAT
REFLATION STAGFLATION
STOCKS COMMODITIES
BONDSCASH
Corporate
Bonds
High Yield
Bonds
Government
Bonds
Inflation-
Linked
Bonds
Softs Energy
3
For professional investors only, not suitable for retail investors.
MARKET RECOVERED; FED HIKES TO RESUME
Chart 5: China slowdown seen as a deflationary shock
Chinese growth has been slowing since 2010
and this has had a destabilising effect on
emerging markets through commodity price
falls. The deflationary impact was reinforced
last summer when China responded to US
dollar strength by devaluing its currency,
triggering a sharp correction in equity markets.
Chart 6: Deflation fears fed into a major selloff in early 2016
The pattern was repeated early this year. By
mid-February fears had spread to encompass
the energy sector, the US economy and banks in Europe and Japan. Our investor sentiment
indicator registered six consecutive weeks of
depressed readings, a panic comparable to
historic crises like the Lehman failure of 2008
and the euro crisis of 2011.
Chart 7: Rollercoaster or a breakout?
We maintained a positive fundamental view
throughout this period and, reacting to the
signal from our contrarian sentiment
indicator, we bought stocks around the lows.
Once again, the market rebounded as policy
makers adjusted to an easier monetary policy
path and we lightened up our equity exposure.
What next after the second V-shaped rebound?
If the recovery in markets makes the Fed feel
able to raise rates again in June, we might see
a third currency adjustment from China and a
third sell off over the summer.
4
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WHAT’S NEXT AFTER THE V-SHAPED REBOUND?
Chart 8: Sell in May and go away?
Volatility tends to pick up over the summer
months in any case, as trading volumes dry up
and fundamental analysts struggle to
distinguish a seasonal drop in business activity
from a weakening trend.
The world equity markets have returned an
average 10% a year in US dollar terms since
1973 including income. Incredibly, the return
in the months of May to September has
averaged close to zero.
Source: DataStream World USD Total Return, average calendar year profile 1973 to 2014, rebased to 100 on 1
January. Average seasonal profile of the MSCI World equity total return index in US dollar terms since 1973.
Chart 9: Perhaps buy the dip this time.
Stocks may well correct in response to a
range of risk factors including concerns
surrounding the UK Brexit vote.
We remain constructive, however, and
would buy dips. The last few weeks have
seen evidence of a recovery in global
growth. The Chinese money supply is
growing at its fastest pace since July 2010
and we are seeing better data out of the US.
Chart 10: Japan vs emerging markets as a US dollar call
We especially like Europe and Japan, regions
that underperformed as the dollar weakened
and, we believe should benefit from a rebound.
Emerging markets could underperform if
dollar strength leads to a pull-back in
commodity prices. However, with the
prospects of a synchronised upswing in global
growth improving, we have trimmed
underweights in these areas, funded out of the
US.
100
101
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104
105
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107
108
109
110
100
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01-J
an
01-F
eb
01-M
ar
01-A
pr
01-M
ay
01-J
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01-J
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01-A
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01-S
ep
01-O
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01-N
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01-D
ec
Full year: average return = +9.9%
May to September: average return = +0.3%
October to April: average return = +9.6%
5
For professional investors only, not suitable for retail investors.
WHERE WE STAND
Overweight Japanese and European stocks; underweight government bonds
Asset Allocation Strategy
We have been overweight equities since 2012 on the back of continued global recovery with loose policy and muted inflation.
We bought stocks during the panic last summer and again in January, lightening exposure as central banks adjusted to an easier
monetary policy path and stocks rebounded.
Overweight: Neutral Zone: Underweight:
Equities
Japanese, European equities
Dollar, sterling
Corporate bonds
Emerging markets, Pacific ex Japan
Canadian dollar, Australian dollar
Government bonds, Commodities
UK, US
Euro, yen, Swiss
Multi Asset: Overweight Equities
We have been overweight equities since 2012 on the back of continued recovery with loose policy and muted inflation. Our base
case is for continued equity-friendly Recovery in 2016.
We are underweight government bonds as a funding source for the equity overweight. We see substantial upside risk to yields if
the UK votes to remain in the EU and a more inflationary global scenario develops. We prefer corporate bonds to government
bonds.
We are slightly underweight commodities. Excess capacity, slower growth in China and the potential for renewed dollar strength
are headwinds and upward sloping futures curves mean investors suffer a negative roll. However, we have trimmed our
underweights due to the increased likelihood of a revival in global manufacturing.
Equity Regions: Overweight Japan & Europe
We are overweight equities in Japan and Europe, regions that capture the essence of the Recovery phase. Growth is recovering
but policy is very loose. Both central banks are in the middle of aggressive monetary easing programs that recent currency
strength will reinforce.
We are using the US as a funding source for other regions. While we like the pro-growth policy stance and we expect US
consumer strength to dominate over industrial sector weakness, there is a greater risk of interest rate rises.
We are broadly neutral Asia Pacific ex Japan and the emerging markets. A return of capital to the US will weigh on these
markets as the Fed raise rates. However, we have trimmed underweights as a more synchronised recovery seems more likely.
We are underweight the UK. We expect the UK to remain in the EU after the June referendum and the subsequent recovery in
sterling will impact the relative performance of the UK stocks in local currency terms.
Currencies: Overweight US dollar & Pound
We are overweight the US dollar. The dollar weakened as the market priced out planned Fed rate hikes. We expect it to
strengthen from here as the market gradually factors them back in again. No other major central bank is heading in the same
direction.
We are overweight sterling as we believe that current weakness is primarily Brexit related. As in the US, we believe the market is
under-pricing the likely pace of interest rate rises and the strength in the housing market.
Our main underweight positions are in the euro and the Japanese yen. Central banks in these areas are printing money with the
unstated objective of weakening their currencies and we expect this to continue.
6
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ECONOMIC OUTLOOK
The recent recovery in risk appetite reflects some
important macroeconomic developments since our
last Investment Clock publication. A recovery in the
price of oil has reduced deflation fears, while stronger
economic data has altered the dominant market
narrative in China, away from slowdown and towards
upswing. Some data in the US has been quite soft
during Q1 and the Fed have reduced their
expectations for the likely pace of rate hikes, although
we expect them to hike rates twice this year. Though
not our central scenario, we now see an increased
probability of a more general upswing in global
demand during H2, on account of stronger data from
China. This has implications for our investment strategy.
US: continued strength in labour market data
keeps the door open for June Fed hike.
Since our last report in March, the Federal Reserve has
signalled a less aggressive path to their policy intentions, more
in line with our own expectations of two hikes this year. Most
labour market data remain reasonably robust, including a fall
in jobless claims to their lowest level since 1973 (chart 1), while
the main Institute for Supply Management (ISM)
manufacturing survey has strengthened. Conversely, other
data suggest some softness in economic activity during Q1,
while wage growth remains tepid, despite the fall in
unemployment.
We still think fears of an oil induced recession look overcooked: employment in the oil & gas sector is a tiny share of total employment, while energy related capex accounts for a relatively small (and falling) share of total equipment & structures spending. Both headline and core Consumer Price Index (CPI) inflation have risen in recent months, and we expect headline inflation to rise further as the sharp decline in the price of energy seen in 2015 drops out of the year-on-year comparison. Given this
backdrop, a summer hike in the main Fed Funds rate remains our central scenario. The likely contenders in the November Presidential Election are now becoming more apparent: the Democratic Party seems set to select Hilary Clinton, while the Republican Party appears to be very divided on the merits of Donald Trump’s candidature. Given such a choice, financial markets will probably be happier with a Clinton presidency (partial continuation of Obama) than the more radical Mr Trump.
China: signs of change in the economic weather
assuage fears of economic slowdown, but reignite
an old debate about “pump priming” and the mix of
growth.
For much of the past year, and in particular through periods
when China’s economy was alleged to be “collapsing”, we have
remained consistently more upbeat than the market. The story
has now shifted in our favour. However, the sharp upward movement in a range of economic indicators has resurrected
an old debate about excessive stimulus.
GDP growth was estimated at 6.7% yoy in Q1, however we do
not place much store by the GDP release alone. Instead, we
monitor a range of indicators, including industrial production,
monetary growth and Purchasing Managers Index (PMI)
surveys. Since our last publication, we detect a significant
change in momentum. On the expenditure side of GDP, fixed
asset investment rose by 10.7% in March, with a large increase
in property and infrastructure investment.
While some investors may question where all this will end (the
issue of so-called “pump priming” demand via credit growth in
China is an old one), we now expect a China recovery to be a
significant theme in markets during 2016, quite at odds with
the “China in free fall” thesis which dominated market debate
only a few short months ago. In particular, we expect a change
in conditions for those economies and sectors most exposed to
industrial related trade with China.
7
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Eurozone: modest recovery continues, however
with inflation very low, the ECB is already raising
expectations of further easing.
The eurozone continues to be a major beneficiary of the shift in
the terms of trade between energy producers and consumers,
which has taken place over the past year and a half; it was the
one major economy where we upgraded our growth forecast
during 2015. GDP growth remained soft in Q4 2015, at just
0.3%qoq, however growth in Q1 2016 has now been estimated
at +0.6%qoq. Domestic demand in Germany has been a major
support for eurozone growth, with rising real incomes,
investment and government spending on the refugee crisis.
Headline CPI inflation has remained low and far below the
ECB’s definition of price stability. This provided the backdrop
to the announcement of further stimulatory measures in mid-
March: the ECB cut their benchmark deposit rate again and
announced an increase in their asset-purchases. They also
announced a second targeted long-term refinancing operations
(TLTRO) lending facility with basically ‘free money’, or if
certain lending conditions are met, banks could even be paid to
borrow. On the fiscal side, austerity is no longer a significant
drag on eurozone growth, while spending on the refugee crisis
could act as a stimulus, particularly in Germany.
We expect improving credit conditions, supportive monetary
policy, low euro, and a lessening drag from fiscal policy to
continue to support GDP growth in 2016. The pick-up in
monetary growth suggests an even stronger recovery in 2016,
above modest consensus expectations.
With the Fed moving towards tighter policy, while the ECB
remains in easing mode, a weaker euro remains a key
argument for our overweight position in European equities.
UK: some signs of Brexit uncertainty impact on
economic activity
The main business and consumer surveys suggest only a small
easing in UK economic growth in recent months, however
more anecdotal evidence from the financial and property
sectors suggest that some major decisions have been
postponed until after the vote. The latest CBI quarterly survey
for Q2 does not suggest a marked rise in political uncertainty
(especially when compared with the 1975 referendum), so we
are cautious in reading too much into media stories that Brexit
risk is already having a significant impact on economic activity.
Our base case remains that the UK will remain in the European
Union, on the expectation that most undecided voters will
prefer a status quo they can see, rather than the less visible
alternative. Sterling has recovered somewhat as spread betting
odds have moved in favour of this outcome, however we expect
markets to remain uncertain right up until the vote on 23 June.
Putting Brexit risk to one side, we expect growth to remain
close to trend over the next year, supported by domestic
consumption and business and housing investment.
Consumer confidence is at near record levels and business
investment intentions (ex oil) are strong. The unemployment
rate has fallen to a post-crisis low of 5.1%, while total
employment rose by 360,000 in the year to Feb 2016, with
much of that rise driven by a rise in full-time employees. The
employment rate (16+ employment as % share of 16+
population) is now 74.1%, the highest since records began in
1971.
We expect a rise in BoE Bank Rate once Brexit uncertainty is
out of the picture and inflation moves closer to target.
Views expressed are those of RLAM Economist
8
For professional investors only, not suitable for retail investors.
SPECIAL TOPIC –
MONETARY POLICY
EXHAUSTED?
Are we reaching the limits of monetary policy or
are there more creative things that can be done?
Since nominal interest rates topped out in the late 1970s, each
rate cycle has peaked at a lower and lower level (chart 1).
Despite the sharp fall in policy rates in recent decades,
inflation around the world remains very low, so it appears that
central banks have been accommodating a downward trend in
the ‘neutral’ or ‘equilibrium’ rate of interest; in other words a
policy rate that might once have been considered inflationary
is now contractionary. Given the relatively weak recovery from
the Global Financial Crisis, all indications are that the
equilibrium real interest rate has been exceptionally low, hence
the Fed’s caution in raising rates. The task for policy makers
now is to reload the policy gun, in time for the next downside
shock, but will this be possible?
Chart 1
In recent months some central banks, including the ECB and BoJ, have moved interest rates into negative territory, in the
face of persistently low inflation expectations. While there is
some evidence to suggest that ECB action to date has helped
contain the slowdown in the eurozone economy, and there is
now evidence of a pick-up in lending growth, economic growth
remains very low. Even in economies where growth has been
somewhat stronger in recent years, such as the US, it likely that
the next economic downswing will see interest rates being cut
from a very low plateau. Arguably, negative rates can create
more problems than they solve: they are unlikely to be passed
on to depositors and there is always the risk that they squeeze
bank margins to the point where they become
counterproductive. So with limited room for manoeuvre, talk
has turned to more radical options for monetary easing, and to
so-called ‘helicopter money’ in particular.
Helicopter money, a term first coined by Milton Friedman in
1969, refers to a money financed tax cut, and is actually quite
an old idea. Under such an arrangement, the central bank
would create money electronically, which would then in effect be turned over to the government, in order to boost public
spending and/or finance a tax cut for households. The major
difference between helicopter money and the current policy of
quantitative easing (QE) is that traditional QE is mediated via
asset prices (central banks purchased government and other
debt securities, in order to push up valuations), whereas under
a ‘helicopter drop’, the stimulus to the economy would be more
direct, and would also avoid the problem that QE tends to
benefit higher income groups, who have higher exposure to
asset prices, but who tend to save a proportionately larger
share of their income than lower income groups.
If we accept that inflation is ‘always and everywhere’ a
monetary phenomenon, then in theory at least the ability of
monetary policy to raise inflation is unlimited, however it
would be difficult to decide on the right level of helicopter drop
largesse: too little and there isn’t enough stimulus, too much
and the result is hyperinflation. Also, while central banks have
readily engaged in QE, they would be much more cautious
about trespassing into the fiscal policy space, which has been viewed as the rightful purview of democratically elected
politicians (although people used to say the same about
monetary policy).
There would also be important implications for their balance
sheets. Under traditional QE, the central bank balance sheet is
credited on both the asset side (the securities acquired) and
liabilities (commercial bank reserves held at central bank). By
contrast, under a money financed tax cut, there is an increase
in liabilities, as the money ‘given’ to the government finds its
way into commercial banks, however there is no corresponding
increase in assets. If and when the central bank wished to
tighten policy via higher interest rates, it would put more
pressure on their balance sheets, as these commercial bank
reserves would attract higher interest payments.
So a move by central banks into the fiscal arena would be a
radical departure and raise the risk of a sharp depreciation in
the value of money. While we would not rule it out, our central
case is that these more radical policy measures will only be
used if ‘deflation’ is a clear and present danger. By ‘deflation’,
we don't mean a short period of negative headline inflation: as
the impact of the sharp fall in the oil price fades, headline
inflation should rise. A deflationary economy is characterised
by falling nominal wages and asset prices and this is not the
case with the US, UK, the eurozone, or even Japan. In the
latter two economies, where the risks of deflation are greatest,
there is enough evidence to suggest that lower energy prices
are concealing a rise in more medium term inflation drivers:
credit conditions in the eurozone have improved (chart 2)…
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For professional investors only, not suitable for retail investors.
Chart 2
…while nominal wage trends in both regions do not suggest a
general descent into sustained deflation (chart 3).
Chart 3
If we are wrong, then it is more likely that central banks
employ the LTRO approach already adopted by the ECB. At
present these are four year loans which the ECB extends to the
banking sector at zero or negative rates. The maturity of these
could be extended further, in order to provide considerable
monetary stimulus.
Views expressed are those of RLAM Economist
10
For professional investors only, not suitable for retail investors.
HOW THE INVESTMENT CLOCK WORKS
We can draw the economic cycle as a circle with growth and inflation the vertical and horizontal axes. A ‘normal’ cycle starts at the
bottom left in Reflation and proceeds in a clockwise direction through Recovery, Overheat and Stagflation. The Investment Clock
diagram shows different asset classes positioned around the clock face at the time at which they usually outperform.
The Investment Clock Diagram
Source: RLAM
The Investment Clock can be used to select investments when you have high conviction on the outlook for economic growth.
If you expect growth to be strong you buy cyclically-sensitive assets in the top half of the diagram. That means stocks, commodities, cyclical equity sectors, corporate credit and industrial metals.
If you are worried about growth you invest in ‘safe haven’ assets in the bottom half, such as bonds, cash, defensive equity sectors, government bonds and gold.
Equally, the Investment Clock can be used when you have a view on inflation.
If you expect inflation to fall you buy stocks, especially the financial and consumer sectors, and long duration bonds. If you anticipate a rise in inflation you keep your money in commodities and cash, you buy shares in resource companies
and you favour inflation-linked bonds and junk bonds that will benefit as the real burden of debt is inflated away.
INFLATION RISES
INFLATION FALLS
GR
OW
TH
M
OV
ES
B
ELO
W T
RE
ND
GR
OW
TH
MO
VE
S A
BO
VE
T
RE
ND
Industrial Metals
Precious Metals
RECOVERY OVERHEAT
REFLATION STAGFLATION
STOCKS COMMODITIES
BONDSCASH
Corporate
Bonds
High Yield
Bonds
Government
Bonds
Inflation-
Linked
Bonds
Softs Energy
11
For professional investors only, not suitable for retail investors.
MARKET RETURNS: SOFTNESS AFTER A RECOVERY
Note: Standard indices sourced from DataStream and Bloomberg. (*) Property Returns as of March 2016.
For professional clients only. Past performance is no guide to the future. The value of investments and the income from them is not guaranteed and may go
down as well as up and investors may not get back the amount originally invested. Issued by Royal London Asset Management May 2016. Information correct at that date unless otherwise stated. The views expressed are the author’s own and do not constitute investment advice. Royal London Asset Management
Limited, registered in England and Wales number 2244297; Royal London Unit Trust Managers Limited, registered in England and Wales number 2372439.
RLUM Limited, registered in England and Wales number 2369965. All of these companies are authorised and regulated by the Financial Conduct Authority. All of these companies are subsidiaries of The Royal London Mutual Insurance Society Limited, registered in England and Wales number 99064. Registered
Office: 55 Gracechurch Street, London, EC3V 0RL. The marketing brand also includes Royal London Asset Management Bond Funds Plc, an umbrella
company with segregated liability between sub-funds, authorised and regulated by the Central Bank of Ireland, registered in Ireland number 364259. Registered office: 70 Sir John Rogerson’s Quay, Dublin 2, Ireland. Our ref: 697-PRO-04/2016-JW.
Multi Asset %1M %12M %1M %12M
UK Stocks 0.8 -6.7 0.8 -6.7
Global ex UK Stocks 0.3 -6.2 -1.4 -1.7
Gilts -0.3 5.0 -0.3 5.0
UK Cash 0.0 0.5 0.0 0.5
UK Property* -0.2 11.7 -0.2 11.7
Commodities 7.3 -19.1 4.6 -15.6
Equity Regions %1M %12M %1M %12M
UK 0.8 -6.7 0.8 -6.7
North America -0.2 -1.2 -2.5 2.9
Europe ex UK 1.5 -10.8 0.4 -5.5
Japan -0.1 -17.7 3.1 -2.9
Pacific ex Japan 1.7 -9.1 -1.2 -9.0
Emerging Markets -0.5 -14.3 -3.0 -15.9
Global
Equity Sectors %1M %12M %1M %12M
Consumer Discretionary -0.9 -4.8 -2.3 0.3
Industrials 0.7 -4.5 -0.6 1.1
FX Financials 1.7 -12.0 0.0 -8.5
USD 1.45 -1.9 4.0 Consumer Staples -0.6 7.0 -2.1 11.0
EUR 1.27 -1.0 7.1 Utilities -0.5 2.6 -2.2 6.9
CHF 1.39 -1.6 1.8 Healthcare 2.2 -5.9 0.3 -1.7
JPY 155.4 2.1 16.9 Energy 6.7 -15.5 4.9 -13.5
AUD 1.94 -3.3 -0.5 Materials 5.3 -11.7 3.9 -8.3
CAD 1.85 0.7 -0.9 Telecoms -0.4 -2.0 -1.7 2.1
Technology -5.3 -5.4 -7.2 -1.1
CB rates Bonds %1M %12M %1M %12M
Fed 0.50 0.00 0.25 Conventional Gilts -0.3 5.0 -0.3 5.0
BoE 0.50 0.00 0.00 Index Linked Gilts -1.1 1.3 -1.1 1.3
ECB -0.40 0.00 -0.20 GBP Credit 0.9 3.2 0.9 3.2
BoJ -0.07 -0.06 -0.14 Global High Yield 2.9 0.2 2.8 0.0
Bond Yield Commodities %1M %12M %1M %12M
US 10 Year 1.80 4 -34 Energy 11.9 -42.5 9.2 -40.0
UK 10 Year 1.55 12 -30 Agriculture 5.0 -0.1 2.4 4.2
EU 10 Year 0.21 8 -24 Industrial Metals 4.7 -23.4 2.1 -20.1
JP 10 Year -0.13 -7 -49 Precious Metals 8.3 9.1 5.7 13.8
Local GBP
Local GBP
GBPLocal
Local GBP
Local GBP
chg 1M
(bps)
chg 12M
(bps)
1 GBP
buys
chg 1M (%)chg 12M
(%)
%1M
(vs GBP)
%12M
(vs GBP)
Rate (%)
Yield (%)
Global and UK stocks pulled back to be flattish over the one month period after a strong rebound from the February lows. Gilt yields rose but remains at low levels.
While one month regional equity returns were similar, Japanese stocks underperformed at the end of April as the yen strengthened when the Bank of Japan failed to ease policy as expected.
The easier monetary stance by the US Federal Reserve weakened the US dollar to a 14 month low. Meanwhile, sterling recovered towards the end of April with the odds of Brexit receding.
Commodities posted strong gains over the month with gains led by a recovery in energy and precious metals.
