Room for disappointment from Japan, Europe in April, says BlackRock’s Ian Winship

Ian Winship, head of Sterling Bonds and manager of the BlackRock Absolute Return Bond Fund says his outlook for April includes the possibility that Japan and Europe could disappoint fixed income markets.

April Outlook

A number of positive and negative factors will influence bond markets this month. On the positive side, market expectations that the global economy can gain more positive momentum are high, and US fiscal headwinds have failed to hold that economy back thus far.

However, in Europe, economic data will be the focus as consensus continues to hope for better news in the second quarter. On this basis, we expect that weaker data and any resulting market disappointment will be met by further stimulus by the ECB, and the pending formation of a new Italian government and more news on the Cypriot bailout will continue to weigh on markets.

The rhetoric from Japanese fiscal and monetary authorities is widely expected to be converted to hard policy. However there is room for disappointment if reforms take too long to emerge, and weaker Chinese data may also become an issue for market sentiment.

March Review

Risk markets reflected divergence in March as the US largely ignored negative European news. Equities continued to rally (S&P +10%, FTSE +10%, DAX +3, NIKKEI +15%) while government bond yields were sharply lower with the exception of US treasuries. Divergence was also evident in economic data as the US continued to confirm a more positive outlook; first quarter growth could be close to 4%, while European and UK data remained weak.

Politics continued to drive sentiment in Europe last month. Italy’s failure to form a government was the primary focus until the Cypriot bailout terms were announced. The poor handling of the initial announcement by Cyprus and subsequent plans undermined market confidence, particularly in European banks, and the euro also fell.

 

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