Schroders: Crude oil prices rebounded in April

The start to the first quarter reporting season was not as bad as the market had come to expect so US equities recovered some of the ground that they lost in March. The benchmark S&P 500 index ended the period up 1.0%, despite worries that a resurgent dollar would trigger a slew of profit warnings. A recovery in crude oil prices also helped sentiment, as did a continued pick-up in merger & acquisition (M&A) activity. While macroeconomic data was generally poor, bad news was treated as good for the markets, by pushing back expectations as to when the Federal Reserve (Fed) would pull the trigger on the first interest rate rise.

M&A highlights included news of FedEx’s bid for European rival TNT, while generic drugs leader Mylan bid for rival group Perrigo in an attempt to fend off a hostile takeover from Israel’s Teva Pharmaceutical Industries. On the negative side, Comcast dropped its ambitions for Time Warner Cable after running into regulatory resistance.

The financials sector performed well with Goldman Sachs reporting strong first-quarter results. Meanwhile, the energy sector was the best-performing market segment overall, buoyed by crude oil’s recovery. However, some of the shine was taken off this following weak first quarter results from integrated major ConocoPhillips, the first of the big US oil producers to report.

Core non-durable goods orders from the Department of Commerce were weak again, while the Conference Board’s consumer sentiment index continued its volatile trajectory since the start of 2015, falling back to 95.2 in April after March’s recovery. In a statement following the latest Federal Open Market Committee rate-setting meeting, the Fed suggested it might have to wait until the third quarter to raise rates. First quarter GDP came in at a lower-than-expected 0.2% annualised.

Eurozone

Eurozone equities delivered a negative return in April, although the MSCI EMU index is still up 17% on a year-to-date basis. The month saw a reversal of recent trends with government bond yields rising, albeit still to very low levels, and the euro strengthening against the US dollar. The euro’s relative strength was particularly pronounced towards the end of the month after US GDP data disappointed, pushing out expectations of a US interest rate rise. Greece’s negotiations with its creditors continued with little sign of a breakthrough.

Economic data from the eurozone was mixed over the month. The final composite purchasing managers’ index (PMI) for March came in at 54.0 although the flash reading for April slipped to 53.5. Index compiler Markit said the slowdown was due to France and Germany and that the rest of the eurozone enjoyed the strongest growth since August 2007. Eurozone annual inflation was estimated at 0.0% in April, up from -0.1% in March. The region’s unemployment rate remained stable month-on-month at 11.3% in March. Spain announced stronger-than-expected first quarter GDP growth of 0.9% quarter-on-quarter.

As market trends reversed, so did sector leadership. Energy was the top gainer, helped by rising oil prices over the month, while utilities also posted positive returns. Most other sectors registered negative returns with healthcare – which had been very strong in previous months – the worst performer. By country, the German stockmarket was one of the weakest amid worries the recent strengthening of the euro would negatively impact exporters. Outside of the eurozone, Norway’s stockmarket was supported by the oil price recovery.

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