April was a very volatile month for financial markets. It began on “Liberation Day,” when President Trump announced significant import tariffs on many trading partners. Fears of recession caused stock prices to fall hard, and commodity prices and interest rates also went down. The US dollar also suffered after a wave of selling by foreign investors of US bonds. The U.S. bond market was gradually seen as less and less stable, and investors preferred (for a while) safe countries such as Germany.
The market’s reaction did not leave President Trump unmoved. A few days later, he announced a 90-day pause for the implementation of import tariffs; and also saw room for making deals with individual countries. He even mentioned that it was a good time to buy shares. This very remarkable news did not miss its effect, stock prices went up again.
The uncertain political environment is beginning to seep into the real economy where growth rates were slightly disappointing. This left room for the ECB to cut policy rates again by 0.25% to 2.25%
Shares
Even though it was not as bad as March, equity markets also took quite a step back in April. The MSCI All Countries World index (measured in euros) lost 4.1% from last month. The returns of emerging markets (-3.7%) and developed markets (-4.1%) stayed close together this time. Again, within developed markets, North America was by far the worst performing region: -5,3%. In Europe (-0.8%) and Pacific excluding Japan (-0.7%), losses were limited, and Japan did slightly better still (unchanged from March). Among emerging markets, it was notable that Latin America was able to return a positive return (+1.6%), where the EMEA (-3.4%) and Asia (-4.3%) regions made a nice feather in the cap. China was the biggest loser with a negative return of -9.0%. Equities with the style growth (-2.1%) again outperformed relatively better than equities with the style value (-6.1%) in April.
Bonds
The above effects caused less demand for U.S. government bonds. As a result, 10-year interest rates in America fell “only” by 0.04% to 4.16%. Stronger declines were visible in Europe. In the Netherlands, 10-year government bond yields fell 0.28% (to 2.68%). The 10-year German government bond yield fell 0.29% (to 2.44%). The “flight to safety” reduced investors’ risk appetite. The risk premium of less risky corporate bonds rose 0.14% to 1.09%. We saw a similar increase in emerging market government bonds (+0.19% to 3.68%). More risky corporate bonds experienced a stronger increase of 0.45% (to 4.00%).