The tone and mood of financial markets in April was very different to that witnessed in the first quarter.
Rising US Treasury bond yields triggered a sell-off in risk assets. In April, we saw the 10-year US Treasury notes breach the 3.0% mark for the first time since 2011, but little reaction in equity markets.
In fact, we saw very strong returns from many developed stock markets, in particular, the UK, which registered rises of more than 6%. The strong oil price was a clear tailwind for the FTSE, given the large weight to energy and materials stocks.
There were a number of reasons to be cheerful last month, most notably following an exceptional earnings season in the US. Corporates continue to enjoy bumper profits there in this era of low borrowing costs, benign inflation and robust growth. The US equity market's rise of 2.20% in the month put it towards the bottom of developed market returns, but the strong pound was a headwind here. European, Asian and Emerging Market equities all enjoyed healthy gains.
Unsurprisingly, given the weakness in bond markets, most fixed income indices delivered negative returns. Gilts were down around 1% although UK corporates were flat as spreads tightened.
Geopolitical issues remain, not least in the ongoing trade negotiations between the US and China, and a more recent escalation of tensions between the US and Russia over Syria. However, April again showed that investors and financial markets are willing to look past these risks when corporate fundamentals are strong.
Guy Myles Chairman, Flying Colours Investment Committee