In April, markets started to accept that US interest rates would stay higher for longer. Inflation was proving stickier than expected at the start of the year, with progress towards the 2.0 per cent target stalling. Government bond yields rose further, with the 10-year Treasury yield ending the month at 4.35 per cent – quite a move from the 3.5 per cent at the start of 2023. US equity markets gave up some of the first quarter's gains, with Nasdaq down 4.4 per cent in April and the S&P 500 down 4.2 per cent. In Japan, the Nikkei 225 fell by 4.8 per cent, but the better gauge of the health of the Japanese stock market, the Topix, was off by only 0.9 per cent. Continental European markets were also weak, with the Dax dropping 3.1 per cent, CAC falling 1.9 per cent and the MIB shedding 1.5 per cent.
Remarkably, the UK market showed some resilience, outperforming other markets. The FTSE 100 was up 2.4 per cent in April. In fact, on a total return basis, the FTSE 100 has even outperformed the S&P 500 this year, with the FTSE 100 (Total Return) Index up 6.8 per cent compared with 6.0 per cent for the S&P 500 (TR) Index. This positive trend was also reflected in the performance of other indices, with the FTSE Small Cap Index gaining 3.4 per cent in April, the FTSE 250 0.9 per cent, and the FTSE Aim All-Share 2.5 per cent. The market also saw continued interest in UK stocks, with recent bids for FTSE 250 members Tyman (TYMN) and Darktrace (DARK), and an approach to Anglo American (AAL) from BHP (BHP) in the FTSE 100.
With its high exposure to resources companies, the UK benefited from the strong bounce in commodity prices. For example, rhodium was up 32 per cent, zinc 20 per cent, nickel 16 per cent, and copper 14 per cent. Copper ended the month at its highest price in two years. Another 6 per cent or so will put it at the highest since 2011. It has been a long time coming, but the market is finally starting to acknowledge that there is insufficient copper production to meet demand. In addition, stocks are low. In the first two decades of the 21st century demand growth was driven by phenomenal economic growth in China. The move to substitute fossil fuels with electrification in our energy mix is driving demand and is likely to outstrip the incremental growth of the past. The UK will also have been helped by further progress on inflation. On 22 May, when the April inflation numbers are released, it is likely to show it has dipped to 2.0 per cent or even lower. Against this background, holding out against an interest rate cut will be difficult for the Bank of England. Even more so if the European Central Bank cuts rates.