Market index returns

Month to date since March 31, 2024 as of April 30, 2024

Index definitions: Global Real Estate = FTSE EPRA/NAREIT Developed Index; Global Infrastructure = Dow Jones Brookfield Global Infrastructure Index; Natural Resource Equities = S&P Global Natural Resources Index; Commodity Futures = Bloomberg Commodity Index; TIPS = Barclays US TIPS Index; Global Equities = MSCI World Index; Real Assets Index = 30% FTSE EPRA/NAREIT Developed Index, 30% Dow Jones Brookfield Global Infrastructure Index; 15% S&P Global Natural Resources Index; 15% Bloomberg Commodity Index, 10% Barclays TIPS Index. Source: Bloomberg, DWS. Past performance is not indicative of future results. It is not possible to invest directly in an index.

• Inflation keeps Fed on hold: The Fed concluded its meeting on the first day of May, leaving the Federal Funds target range unchanged at 5.25%–5.50% in a unanimous decision, but added a line to its released statement that “in recent months, there has been a lack of further progress towards the Committee’s 2 percent inflation target.” Fed Chairman Powell, at his presser, sounded more hawkish than in March, but less hawkish than feared, and remained open to the possibility of additional hikes if needed, but indicated they were not in the base case, rather discussing “paths to cutting” and “paths to not cutting.” He also reiterated the Fed’s dual mandate, indicating they would focus more on keeping employment full, though they would like to see slower wage growth. Perhaps the most market-moving news of the event was that the Committee would reduce the pace of Treasury runoff on the Fed’s balance sheet from $60B per month to $25B starting in June, which led to a quick spike down in the U.S. 10-year Treasury yield to around 4.58%, though they also indicated the pace of MBS runoff would remain the same at $35B. When the dust had settled, markets had again priced in a full cut by November (via Fed Funds futures), with the possibility of another before year’s end.
• Weaker employment data softens rate concerns: The change in nonfarm payrolls for April showed only 175k jobs created, weaker than the 240k expected and a significant decline from the 300k+ created in March. Additionally, unemployment picked up 10 bps to 3.9%, wage growth slowed to 3.9% year-on-year, and the prior 2-month revision showed 22k fewer jobs created than previously estimated. Earlier in the week, the JOLTS report showed 8.49M job openings in the U.S., fewer than expected and the lowest level since February 2021. While initial jobless claims of 208k and continuing claims of 1,774k reported this week remain benign, we continue to hear anecdotal evidence of announced layoffs, especially from some of the larger tech firms (e.g. Google, Microsoft, Tesla, and Amazon). Given evidence of softening labor market conditions, 10-year Treasury yields fell further, briefly below the 4.5% level, but have since stabilized just above that level, and investors (via Fed Funds futures) slightly increased the chances of a Fed rate cut by the September meeting, as Fed members will take this data into consideration given the Chairman’s reiteration of the Fed’s dual mandate just days earlier.
• Ready, steady…cut?: Eurozone inflation, unchanged from March, is clearing the path for a potential ECB rate cut in June. According to the latest figures from Eurostat, April’s annual inflation in the Euro area was 2.4%, the same as March and in line with expectations. Core inflation, which filters out volatile food and energy prices as well as alcohol and tobacco, slowed down by ~20bp in April, declining from 2.9% year-on-year to 2.7%, slightly above consensus. Nevertheless, this marks the ninth consecutive month of declining annual core inflation rates for the broader eurozone. Digging a little deeper, closely watched services inflation remained sticky, but core goods are clearly declining. Encouragingly for the European Union, flash estimates of Q1 2024 GDP (released the same day by Eurostat) increased by 0.3% compared to the previous quarter—the strongest pace in 1.5 years, as Germany, France, Italy, and Spain beat expectations. The moderation in inflation data, coupled with stronger GDP growth, likely sets the stage for the first ECB rate cut in June (and potentially two more cuts this year), barring any wage growth shocks, rising energy costs, or escalating geopolitical tensions.

• An out of this world acquisition (Infrastructure): This week, SES S.A., a Luxembourg-domiciled satellite operator with global operations, announced their intent to acquire privately held Intelsat Holdings for a cash consideration of €4.6B. Intelsat is an owner and operator of satellites, and the combined company would own over 100 geostationary satellites as well as a medium Earth orbit satellite constellation system used to provide low-latency broadband to remote areas. The companies have explored a merger in the past but found the timing was better now for an acquisition given "significant evolution" at both companies, and the new entity could even challenge the dominance of Elon Musk’s Starlink in the satellite communications area. SES will use cash on hand and proceeds from new bond offerings to fund the deal and expects to see €2.4B of savings through combined synergies over a 3-year period, which would make the acquisition price a bargain if actually achieved. However, given the regulatory and national security approvals needed from multiple countries, the deal isn’t expected to close until the second half of 2025 at the earliest.
• Metal Mania (Commodities): With the broad-based, strong returns of metals in April, both industrial and precious, we thought some additional commentary was warranted given our still bullish views. Recently, we've witnessed copper and gold reaching unprecedented highs, significant M&A announcements (see below for an example), and a fluctuating geopolitical landscape. Many macro indicators are signaling a bullish trend for metals (aside from gold), with real and nominal yields on an upward trajectory, escalating energy prices, recovering Purchasing Managers’ Indexes (PMIs), and measures of liquidity expanding. The sharp rise in copper prices and base metals in general appears to be driven by improving macro sentiment rather than fundamentals. Yet the supply-demand equation remains tight in many areas, which could amplify the upward price momentum. For instance, Cobre Panama, one of the largest open-pit copper mines in the world, remains shut down, and its previously mined concentrate remains unavailable on the market. On the precious metals side, China’s central bank and citizens are aggressively importing gold, with the latter driven by the need for diversification away from real estate into alternative stores of wealth. There’s also been a recent shift (temporary or otherwise) back to cars with combustion engines (as compared to EVs), which require Platinum Group Metals (PGMs) such as palladium or platinum for catalytic converters. Until we see a reversal of the above trends, we could see metal prices continue to march higher from here.
• Anglo-ing for a deal (Natural Resources): Anglo American plc, a UK-based global mining company, recently announced that they received an unsolicited takeover offer from BHP Group Limited, a much larger ($148B market cap) Australian miner and manufacturer of base metals. The offer, all in shares, was close to the $36B market capitalization that Anglo American traded at when the announcement was made, indicating BHP may need to sweeten the deal. There are likely conditions on the offer as Anglo has a complicated structure with a broad mix of commodities including iron ore, nickel, coal, PGMs, copper, diamonds (Anglo owns a major stake in De Beers), and others. For instance, it’s almost certain that Anglo would need to divest of assets in South Africa (iron ore and platinum), as BHP is allegedly interested primarily in Anglo’s copper mining capabilities. Anglo’s price jumped on the announcement and while negotiations are ongoing, we expect there could be competing offers from other interested parties. We should receive some clarity later this month, as under UK security rules, BHP must either announce a firm intention to make an offer or announce that it does not intend to make an offer by May 22nd.