April 2019 Market Commentary

May 5, 2019

By Jan Faure

What moved markets in April?

Global markets were mixed in April as Europe staged a strong recovery on the back of improved risk appetite.

The major events moving markets in April were:

  • US earnings season. More than half of the S&P 500’s companies reported 1st quarter results with approximately 80% of companies posting results ahead of expectations.
  • A seemingly successful summit held between the leaders of North and South Korea.
  • European bourses rallying between 4% and 7% led by investor optimism following merger news between Sainsbury’s and Asda, and better-than-expected company earnings
  • Brent crude oil prices rallied 7.0% MoM.

The oil price, as measured by Brent crude, has jumped 42% y-o-y as at the end of April to $75.17 per barrel. Oil has been propelled recently by the prospect of a disruption in Iranian supplies as US President Donald Trump decides whether to restore the sanctions against Iran that were lifted following the 2015 nuclear agreement. The oil price has also been supported by efforts from OPEC to balance the market via output cuts of 1.8 million barrels per day.

The significance and importance of this price move cannot be understated. The oil price, both directly and indirectly, has a significant impact on inflation and consequently the course of interest rates. The US is already on a steady path of rate hikes and should oil prices continue to move higher, inflation will likely overshoot the Fed’s inflation targets. This would result in further rate hikes which is a dampener on business confidence and growth.

The caveat to the above is that the oil market has changed dramatically over the last few years. Technological advancements have made a barrel of oil go further while crude is being extracted cheaper than ever before. As a result, there are many forces working against higher oil prices (hence OPEC’s need to curtail supply the last 18 months) which makes the future trajectory of prices difficult to predict.

The oil market has always been a clash between geo-politics and market fundamentals. Add to that the impact of climate change and new technology, and the oil market seems destined to keep analysts guessing for some time to come.

GLOBAL INDICATORS: Local reporting currencies

Source: Bloomberg, Investing.com, S&P Dow Jones Indices
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