What has happened
European and US markets ended slightly lower yesterday despite stronger earnings and increased optimism within reopening sectors.
Federal Reserve
Today sees this week’s big event and the unveiling of the US central bank’s latest thinking. Ahead of the meeting today the equity market remains near all-time highs with no major surprises expected from the meeting nor the subsequent press conference. The US 10-year Treasury has increased to over 1.6% despite a reasonable level of demand for seven-year debt in yesterday’s Treasury auction. Whilst Powell is likely to emphasise that Fed governors are seeing an improving economic backdrop, his focus will remain on ensuring that the economic recovery takes hold rather than any near term inflationary risks. The risk remains however that Powell suggests that a pivot in policy may lie in the months ahead, as even this subtle change could have outsized impacts on bond yields and by extension on market leadership. At the start of the year, investors’ biggest concern was a taper tantrum akin to the 2013 sell-off when then-Chair Bernanke suggested that quantitative easing could slow over ‘the next few meetings’. Powell will be very cognisant of avoiding a similar outcome and is therefore likely to stick to the established script.
Oil prices
With India seeing a worrying surge in COVID-19 new case growth, oil markets have been concerned that this will have knock on effects for the oil price given India is the world’s third largest country for oil consumption, as well as being the world’s third largest oil importer. All of this complicates the near-term outlook for oil demand, and with it the supply response that OPEC+ members need to agree on. Yesterday OPEC+ agreed to stick with their plan to taper supply cuts from May despite the questions over ongoing demand in India and other heavily COVID impacted countries in the months ahead.
What doe we think
Many uncertainties remain around the pace and timing of the economic recovery, but it is increasingly obvious that the recovery will not be synchronised which makes global assessments of demand challenging. Oil is just one example however, whether it is OPEC+ estimating global demand for the year ahead, a company assessing the amount of inventory it needs to match consumer purchases or indeed a government estimating its budget deficit, estimates of demand in the recovery pose a challenge to companies and policymakers.
| Index | 1 Day | 1 Week | 1 Month | YTD | |
| TR | TR | TR | TR | ||
| MSCI AC World GBP | -0.2% | 1.5% | 4.1% | 7.8% | |
| MSCI UK All Cap GBP | -0.3% | 1.3% | 3.7% | 9.8% | |
| MSCI USA GBP | -0.2% | 1.7% | 4.9% | 9.5% | |
| MSCI EMU GBP | -0.4% | 2.4% | 5.5% | 8.8% | |
| MSCI AC Asia ex Japan GBP | 0.1% | 1.3% | 3.0% | 4.5% | |
| MSCI Japan GBP | -1.3% | -1.2% | -2.7% | -0.7% | |
| MSCI Emerging Markets GBP | 0.0% | 1.3% | 3.5% | 4.1% | |
| MSCI AC World IT GBP | -0.5% | 2.0% | 6.9% | 7.6% | |
| MSCI AC World Healthcare GBP | -0.7% | 0.9% | 3.8% | 3.6% | |
| Barclays Sterling Gilts GBP | -0.2% | -0.3% | -0.1% | -6.4% | |
| Barclays Sterling Corps GBP | -0.1% | -0.1% | 0.5% | -3.6% | |
| WTI Oil GBP | 1.5% | 1.0% | 2.4% | 27.3% | |
| Dollar per Sterling | 0.1% | -0.2% | 0.9% | 1.8% | |
| Euro per Sterling | 0.0% | -0.6% | -1.6% | 2.9% | |
| MSCI PIMFA Income | -0.2% | 0.8% | 2.4% | 4.3% | |
| MSCI PIMFA Balanced | -0.2% | 0.9% | 2.6% | 5.1% | |
| MSCI PIMFA Growth | -0.2% | 1.1% | 3.3% | 6.7% | |
Source: Bloomberg as at 28/04/2021. TR denotes Net Total Return
