Realised catch-up potential

In the USA and especially in China, April showed the great catch-up potential created by the Corona pandemic and the restrictions on social and economic life. Many companies presented quarterly figures that far exceeded expectations, and the Chinese economy grew by a unique 18.3% year-on-year in the first quarter.

With few exceptions, the stock markets made good progress in April. The German DAX index rose by a moderate 0.85%, while European stocks, as measured by the broad Stoxx Europe 600 index, gained 1.81%. In the US, the S&P 500 index gained 2.82%, while Hong Kong's Hang Seng index fell -1.01%. The global stock index MSCI World rose by 2.11% - all index figures in euro terms.

The encouraging development was based on the continuing expansive monetary policy of the central banks of the USA and the euro area, which they reaffirmed for the coming months. Furthermore, most companies reported higher-than-expected earnings for the first quarter of 2021. Economic indicators also supported equity markets. The Purchasing Managers' Index for services continued to rise in the euro area and Germany, while the index for industry increased only slightly in the euro area and consolidated at a high level in Germany. The German ifo business climate index also continued to recover, rising slightly from 96.6 to 96.8 points.

In the US, the unemployment rate continued to fall from 6.2% to 6.0%, and consumer confidence grew in parallel. Consumer spending rose noticeably, as did retail sales. In April, US President Joe Biden presented his multi-year infrastructure programme, which has a volume of 2.25 trillion US dollars. It is to be financed by higher corporate taxes, among other things. In addition, a programme worth 1.8 trillion US dollars is to be launched. This programme is to be financed by higher taxes on the wealthy. The announcement of higher taxes for corporations and the wealthy was negatively received by the stock market.

In China, several indicators recovered significantly from the previous year's results, which were heavily weighed down by Corona: exports were 31% higher, imports 38%, retail sales 34% and industrial production 14%. Accordingly, the Chinese economy grew by a staggering 18.3% year-on-year in the first quarter.

The rise in inflation weighed on equity markets in April, as investors consequently expect interest rates to rise when inflation rises. Consumer price inflation rose in Germany from 1.7% to 2.0% (euro area: from 1.3% to 1.6%), but the core rate excluding energy and food fell from 0.9% to 0.8%. In the USA, core inflation accelerated from 1.4% to 1.8%, approaching the Federal Reserve's 2% target.

However, 10-year US government bond yields fell from 1.74% to 1.63%, while their German counterparts yielded nine basis points higher at -0.20%. The oil price (Brent) benefited from the strengthening demand from industry and climbed from 64 to 68 US dollars per barrel. The euro appreciated against the US dollar from 1.17 to 1.20 US dollars. The gold price recovered somewhat and rose from 1,705 to 1,770 US dollars per troy.

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