Market Update – April 2016

iStock_000019552558XSmallThe fortunes of the blue-chip FTSE100 Index remained in thrall to the movements of the energy, mining, and banking sectors during March. Smaller and medium-sized companies performed more strongly than their larger counterparts during the month: the FTSE 100 Index rose by 1.3% and the FTSE 250 Index rose by 1.9%, while the FTSE SmallCap Index climbed by 3.8%.

In comparison, the FTSE 100 Index declined by 1.1% over the first quarter of 2016, while the FTSE 250 Index and the FTSE SmallCap Index fell by 2.9% and 2% respectively.

The US economy expanded at an annualised rate of 1.4% over the last quarter of 2015, compared with an earlier estimate of 1%. Growth was boosted by higher-than-expected levels of consumer spending that were underpinned by the effects of low oil prices and a strengthening labour market. Growth in household spending was offset by weakness in business investment and export activity. The US economy grew by 2.4% over 2015 as a whole. Nevertheless, Federal Reserve policymakers intend to proceed “cautiously” before implementing any further increases in interest rates.

US equity markets performed relatively strongly in March and over the first quarter of 2016, boosted by a rebound in commodity prices. During March, the Dow Jones Industrial Average Index rose by 7.1%, the S&P 500 Index climbed by 6.6% and the Nasdaq Index rose by 6.8%. Meanwhile, over the first three months of the year, the Dow Jones Industrial Average Index rose by 1.5% and the S&P 500 Index increased by 0.8%; however, the Nasdaq Index bucked the trend over the first quarter, falling by 2.7%. The drop was largely attributable to a poor January caused by disappointing corporate earnings results from key players in the US information technology sector, including Apple and Intel.

European equity markets generally rose during March, although investor sentiment was negatively affected by terrorist atrocities in Brussels. The Dax Index rose by 5% in March, while the CAC 40 Index increased by a rather more muted 0.7%. Meanwhile, over the first quarter, the Dax Index fell by 7.2% while the CAC 40 Index dropped by 5.4%.

The European Central Bank (ECB) expanded its monthly quantitative easing programme from €60 billion to €80 billion and enlarged its bond-buying programme to include debt issued by the corporate sector. The ECB also cut its principal interest rate from 0.05% to 0% and its bank deposit rate from -0.3% to -0.4%. Meanwhile, the euro rose to its highest level against the US dollar since October 2015 during March.

The rate of unemployment in the eurozone fell from 10.4% in December to 10.3% in January, reaching its lowest level since August 2011. At individual country level, Germany and the Czech Republic posted the lowest unemployment rates of 4.3% and 4.5% respectively. In comparison, the rate of unemployment in both Spain and Greece remained above 20%.

Disappointing trade data provided fresh fuel for concerns over the outlook for China’s economy. Exports fell at an annualised rate of 25.4% during February in US dollar terms, while imports dropped by 13.8%. Meanwhile, China’s industrial production continued to deteriorate during the first two months of 2016, rising at an annualised rate of 5.4%, compared with an increase of 5.9% in December. The Shanghai Composite Index rose by 11.8% during March, but fell by 15.1% over the first three months of the year.

China’s National People’s Congress reduced its forecast for annualised economic growth to 6.5-7% this year and set a target of “above 6.5%” from 2016-2020. China’s Premier Li Keqiang warned that China should be “fully prepared to fight a difficult battle”. China’s leaders aim to press ahead with a range of reforms – including the restructuring of state-owned enterprises – and also intend to create 50 million new urban jobs.

Japanese equity markets rose during March. However, this was not enough to mitigate poor performance during the first two months of the year that was caused by a strong yen, weak commodity prices, and uncertainties over the outlook for China’s economy. During March, the Nikkei 225 Index rose by 4.6%, while the broader-based Topix Index climbed by 3.8%. The TSE Second Section Index – which represents medium-sized Japanese companies – registered a monthly gain of 3.9%. In comparison, over the first quarter of 2016, the Nikkei 225 Index fell by 4.3%, the Topix Index plummeted by a total of 12.9%, and the TSE Second Section Index dropped by 7.4%.

Closer to home, the Northern Ireland Composite Economic Index (NICEI) results show that NI economic activity was estimated to have increased by 0.4% in real terms between Quarter 3 and Quarter 4 2015. The index also increased by 0.9% over the year (Quarter 4 2014 to Quarter 4 2015) in real terms.

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