Volatility continued to dominate the trading scene with barely any trends being set as the market whipsawed from headline to headline.
Earlier in the month, trade wars were the theme, then came tensions with Russia and Syria. By mid-month however, Trump was less vocal on both issues and the market began to focus on economic activity and interest rates again.
US stocks are little changed for April having had some decent swings, the 3 major indices however are lost in no man’s land, producing both lower swing highs and a higher swing low. European stocks are knocking on recent highs with China under pressure.
Precious metals are still range bound, much like currencies, whilst the black liquid gold is holding its uptrend nicely, albeit stalling just shy of $70 a barrel.
US Ten Year Treasury note, the world’s largest bond market, had rallied (interest rates lower) in March but it peaked in early April. From there it has been one-way traffic for it and managed to spend a day above 3% late in the month. It had peaked at 3.02% before falling back the last few days to 2.96%. It was this 3% level that spooked the stock market again on the 24thand I doubt we have seen the last of that this year.
Over in currency land, the Greenback spent most of the month on the front foot, running out of its 2018 range to test the lows of December. This is partly due to the investor appetite for American goods, but also has a lot to do with the ECB. This move on the US dollar also forced several other pairs out of the range they have been in 2018, think EUR/GBP/NZD.
The ECB meeting of April 26thdid little to encourage investors to it. With lacklustre growth, stubbornly stagnate inflation, the value of the Euro seemed unwarranted. The Commitment of Traders (COT) reading reached a record high just before the ECB meeting, but that would have changed quickly since. Having been above 1.20 for sometime now, which would contribute to lower inflation, I can imagine Draghi would be relieved that the currency is weaker. Now that it has broken out of the range it will be telling if it can stay under 1.22. If, on the retest of that level it holds, I suspect the Euro will weaken significantly throughout the northern summer.
Also contributing to the Greenback strength, has been the Loonie and Sterling, both are in the composite of the US Dollar Index. The Canadian currency has also been on the receiving end of central bank dovish commentary like the ECB. And like the ECB, they have good reason to be concerned. Data from the North Americans has not been great, along with NAFTA still not being agreed and Sino-US trade wars. Until clarity is reached on both Trade Agreements I would expect the Loonie to continue to struggle.
The Sterling on the other hand, had Carney on the fence but a succession of poor data prints, culminating in the GDP print on Apr 27th– the worst since 2012, saw investors bail. Theresa May’s cabinet woes also continue to hamper the Pound. I would be very cautious about buying anything British right now and would even be actively selling if the technical analysis matches.
Onto the antipodean currencies and things are well placed for them to shine for the first few weeks of May. Having been systematically sold throughout 2018, the Aussie is well undervalued to it’s peers. I suspect this will change or at least become more balanced in coming weeks. The Kiwi is similarly placed but has the benefit of being support by the COT which shows sentiment appetite is still strong for it.
And finally, I leave you with one of the oldest sayings in the stock market world; “sell in May, go away.” This is a phenomenon that appears with regularity, that investors sell their holdings and go off to enjoy the summer before returning to the markets in Aug/Oct. So do not expect a super bullish stock market for the next few months.