NBK Capital Global Markets Commentary – April 2018

Kuwait: May 8, 2018

Global equities broke their two-month losing streak in April with the MSCI All Country World Index climbing up 0.8%. US equities followed suit, yet posted lower returns with the S&P 500 and Dow Jones Index each closing slightly higher, up 0.3%. In the US, market volatility was a major concern with a potential trade war with China brewing and an air strike on Syria. Further adding suspense to market participants was the upcoming earning season, which for the most part exceeded expectations. During the month, the US 10 year treasury broke through the 3% yield for the first time in almost 4 years alleviating some concerns surrounding a flattening of the yield curve which would have indicated a weaker economic position. The Federal Reserve has recently confirmed that it is on track for two additional hikes during 2018. On the economic front, the Markit Manufacturing PMI came in below the previous reading yet still above the 50 mark at 57.3. The Gross Domestic Product (GDP) for Q1 annualized came in at 2.3%, higher than the consensus.

In Europe, the Stoxx Europe 600 posted a gain of 3.9%, making April the best month of 2018 so far. Unlike the US, European equities performed well during the month. Within continental Europe, three of the largest markets closed in the green. The French CAC 40 Index closed up 6.8% followed by the German DAX 30 Index up 4.3% and Spain’s IBEX 35 Index up 4.0%. During the month, European leaders made it clear that they were willing to hit back if the US placed tariffs on Euro countries. Towards the end of the month, the US did announce an extension of tariff exemptions for the Euro countries avoiding any form of a cross Atlantic trade war. The Markit Manufacturing PMI for the Eurozone came in flat compared to the previous month at 56.2 while the preliminary Consumer Price Index for April, year on year, came in at 1.2%, which was slightly lower than the previous reading.

The UK’s equity market was one of the best performers across global equities in April. The FTSE 100 posted a gain of 6.4% in April, marking its first month of positive return in 2018. Brexit remains a primary concern, although during April, UK’s parliament attached two amendments to the EU Withdrawal Bill moving further away from a hard divorce. Mixed economic data during the month has reduced market expectations of a Bank of England rate hike in their May meeting. The UK economy remains robust with the Markit Manufacturing PMI above 50 at 53.9. The preliminary reading of Q1 GDP, year on year, came in at 1.2%, which was slightly lower than then the previous reading of 1.4%.

Japan’s Nikkei 225 reversed its negative performance from the previous two months, closing in April up 4.7%. During the month, Japan’s Prime Minister visited the US and agreed to open a trade dialogue with the US. The Bank of Japan at their latest meeting left their key interest rate unchanged although it did suggest that it is struggling to achieve its 2.0% inflation target despite the strong economic data and overall growth. The Nikkei Manufacturing PMI came in above 50 at 53.8 while the Markit Service PMI also came in above 50 at 52.9.

In terms of Emerging markets, the MSCI Emerging Market Index in April continued its losing streak for the third month straight, closing in the red 0.6%. On a year to date basis the index remains positive given the stellar performance in January of 8.3%. Throughout the month, a US China trade war has taken center stage. Towards the end of the month, President Trump sent an economic team to Beijing in the hopes of dialing back the rhetoric and coming to an understanding. On the Korean peninsula, North and South Korean leaders met for the first time in 11 years. The one-day meeting is historic with both ends declaring a mutual effort to “establish a permanent and solid peace on the Peninsula”.[CNBC] The Shanghai Composite Index continued to underperform for the third month running closing in the red, down 2.7% while the KOSPI 200 Index posted a gain of 2.8%. On the economic front in China, the NBS Manufacturing PMI and Non-Manufacturing PMI came in above 50 at 51.4 and 54.8, respectively. Furthermore, the year on year Q1 GDP came in at 6.8%, no different than the previous reading.

Brent Oil in April closed up 7.0% marking its second month straight of positive performance. On a year to date basis, the commodity has increased in price by 12.4% reaching a 40-month high of USD 73.48 pbl. Brent prices increased due to geopolitical concerns ranging from renewed sanctions on Iran to air strikes on Syria. Further providing support to the price rise was the strengthening of global demand and reduced crude inventory levels throughout the month. Gold, on the other hand, did not perform nearly as well, dropping in April 0.8%.

GCC equities ended the month in the green 3.1% as measured by the S&P GCC Index. The GCC equity markets were supported by higher oil prices with Qatar taking the lead, up 6.3%, followed by Saudi Arabia up 4.3% and Abu Dhabi up 1.8%. The worst performing index was Bahrain Bourse’s All Share Index down 4.6%, followed by Kuwait’s down 3.2% and Dubai down 1.4%. MENA equities, as measured by the S&P Pan Arab Composite Index, also closed the month of April in the Green 2.7% with Egypt’s EGX 30 posting positive returns of 4.8%.