Chart Of The Week   May 03 2022

April In Review

April In Review

The financial market rout intensified in April. With the exception of the US dollar, all major global financial assets performed exceptionally poorly.

Fixed income markets were once again the top underperformers. US investment grade corporate bond returns were 3.75 standard deviations below their post-GFC average while government bonds globally registered large abnormal losses.

US stocks – which were the only major bourse in the green in March – led major global equity indices lower. Japanese stocks also underperformed their global peers, diverging from their historically inverse relationship with the yen which collapsed in April. Meanwhile, Chinese investable stocks benefited on a relative basis from a late-month rally due to expectations of an easing policy and regulatory environment. However, our China Investment strategists are skeptical that the policy pledges are sufficient to lift the economy. They recommend an underweight allocation to Chinese investable stocks relative to global equities.

The Q1 commodity rally fizzled in April. However, the situation in Ukraine has not yet stabilized and continues to pose a threat to commodity supplies. Thus, negative surprises stemming from the conflict remain a potential source of upside risk to commodity prices over the near-term.

Finally, the US dollar benefitted from a flight to safety amid heightened geopolitical risks and global growth concerns. These forces could continue to underpin the dollar over the near-term. Over a longer investment horizon, further USD strength will require more upside surprises in US interest rates – which we do not expect.