They say a week is a long time in politics, but when two nuclear powers are at each other’s throats one minute and then 6 months later they are organising their first date, you would be forgiven for wondering what on earth is going on. The historic meeting of the leaders of North & South Korea precedes the planned meeting with President Trump over the next few months. Commitments to cease nuclear ambitions were made, something that was unthinkable at the beginning of the year when North Korea boasted of their ability to reach anywhere in the US with their missiles and Mr Trump referred to the North Korea leader as “Little Rocket Man”. We live in very strange times.
This momentous news pushed other big stories onto page 2. The chances of a trade war between China and the US receded slightly as relations warmed a little and the US agreed to temporarily suspend trade tariffs on 6 countries, including the EU, Canada and Mexico, which were due to come into effect at the end of March. The International Monetary Fund published a bullish report on world trade, saying that global growth will hit a 7 year high of 3.9% this year – giving a stark warning at the same time that trade risked being “torn apart” by a protracted trade war. Over April the US and Chinese threats and counter-threats had calmed a little and most of the markets we observe made up for losses suffered earlier in the month when a trade war looked more likely.
Generally, April was a much more buoyant month than we have experienced recently. This always seems to happen when I go on holiday, so you will be glad to know that my wife is collecting travel brochures for our next destination!
UK
If there is one thing consistent in my monthly notes it is the continuing demise of the traditional retail sector and British High Street. April was no different, with Toys R Us shutting its doors for the last time, the Administrators of Maplin looking for someone to take on the branches and we now see House of Fraser and Carpetright showing signs of internal trouble. We should therefore not be too surprised to see the news that Sainsburys and Asda are looking to merge. Attack is sometimes the best form of defence and by joining forces now, and become the UKs largest retail operation, might provide them with some level of safety. Time will tell.
The effect of March’s “Beast from the East” meant that UK growth in Q1 was just 0.1% the lowest rise since 2012. Mortgage lending was also down over the same period – no one wants to look around No. 21 Acacia Road when its -5 degrees outside.
There was some positive news in April. Wages finally climbed above inflation as the year long squeeze on pay showed signs of ending earlier than expected, and unemployment fell to its lowest level since 1975. London was voted the world’s top financial centre, finally climbing above New York for the first time in five years – although this award was presumably doled out before TSB redefined the phrase “banking chaos”.
In the main UK markets, we saw a resurgence with the FTSE100 up 6.42% and the FTSE All-share 6% – the 2nd and 4th best performing indexes in our basket of markets. As has often been the case in recent years, the Pound went in the opposite direction weakening by 2% against the Dollar, trading at around $1.38.
Posh poster boy Jacob Rees-Mogg labelled Theresa May’s favoured option for a customs union with the EU as “Cretinous” in April. She prefers a Customs Partnership, an agreement where our customs checks are equivalent to the EUs, so no further checks would be necessary. This is like a red rag to a bull with the Brexiteers as they are adamant this would severely limit the UKs ability to trade with the rest of the world. Threats to bring down the government if she proceeds with this line of thought have been made – I just pray that there isn’t going to be another General Election. Oh well, only another 11months to go until “B-Day”…
There had been widespread rumours of an exodus of London’s leading bankers after Brexit. Apparently, that is not now going to happen. A report in Politico said that the bankers’ wives – and one husband – had been to inspect Frankfurt, the rumoured new banking capital of Europe, and found it to be ‘dark, grey and dull’. It seems that David Davis and Michel Barnier can huff and puff all they like – in the end it could be bankers’ wives that decide the shape of Brexit.
Europe
Another “bromance” emerged when President Trump welcomed French President Macron to Washington. This visit followed a speech Mr Macron made in Strasbourg where he called for a closer union between member states and more tax and revenue powers once the UK’s contribution was lost. With Chancellor Merkels weakened state after a bruising election last year, some see this as the French leader’s bid to take the reigns as the de facto leader of the EU – a position Mrs Merkel has held for many years.
Despite the pace of growth in the Eurozone starting to slow, the ECB decided to leave interest rates unchanged. In combination with this, the major stock markets had a pretty good month. The French CAC, German DAX and even the Greek markets rose by 6.84%, 4.26% and 10% respectively.
US
When a leader of a major, developed country like South Korea, suggests that Donald Trump should be awarded the Nobel Peace Prize, you know that its silly season. In the real world, the US president had some potentially troubling numbers to tackle. Despite his efforts to tackle the widening trade deficit with tariffs on some imports, the numbers went in the opposite direction with the gap now over $57 billion – with some predicting it could be $1trn by 2020.
Job creation also slowed dramatically in March, with just over 100,000 jobs created and growth in the economy slowed to 2.3%. None of this is going to be helped by forecasts that interest rates are likely to rise significantly this year in a bid to keep inflation under control.
Away from the macro-economics, there was good news for some of the US’s favourite brands with Google and Amazon showing surges in sales and profits. However, it was a very uncomfortable month for Mark Zuckerburg over at Facebook who had to appear in front of a Congressional hearing to apologise for one of the biggest data breaches in history.
The US markets had a roller coaster ride during April, but in the end showed a small profit, 2.12% on the S&P500 and 0.25% for the Dow Jones.
Far East
The news from the Korean border rather overshadowed China’s news in the month – specifically that the country had seen its economy grow at 6.8% in the first quarter, ahead of the government’s growth target for the year of “around 6.5%”, although this figure could be under pressure from a prolonged trade war with the US.
The news of the détente between North and South Korea had a positive influence on the region’s stock markets. Only China, perhaps still worrying about a possible trade war, saw its stock market fall during the month, with the main index down 2.52% (the only index on our list to lose value). Hong Kong went in the opposite direction, up 2.4%. Japan, free of the worry of North Korean missiles flying over its islands, saw the Nikkei Dow rise 4.72%.
Emerging Markets & Pacific Basin
Despite renewed sanctions on Russia for their alleged involvement in the Salisbury poisoning and air strikes against their Middle East ally, Syria, their main market was up 2%. The Indian markets also had a good month, rising by just under 7%.
As always, if you wish to discuss any issues raised in this commentary or anything else, please do not hesitate to get in touch.
The content of this newsletter is for information purposes only and does not constitute investment advice. It is not an offer to purchase or sell any particular asset and it does not contain all of the information which an investor may require in order to make an investment decision. Investments and the income from them can fall as well as rise and you are not guaranteed to make a profit.
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