While geopolitics dominated the headlines in April, it was economic factors that primarily drove markets during the month and underpinned the recovery in most risk assets after sharp falls in previous weeks. Developed market equities rose 1.1% while fixed income markets witnessed declines in credit spreads with gains in high yield bonds despite weakness in government bond markets. However, the most notable and important moves came in an acceleration in the recovery of the US Dollar and a rally in oil prices.

From its low point in mid-February, the US Dollar had already been recovering, but the trend accelerated in April with the Dollar rising by 2.1% on a trade-weighted basis. The trend has been supported by continuing optimism around the US economy, despite a relatively subdued Q1 GDP growth reading of 2.3% and increasing evidence of an upturn in inflation. In response to the uptick in inflation, the Federal Reserve appeared mildly dovish in its April meeting, indicating it was prepared to tolerate a period of overshoot in inflation above its 2.0% target, however investors are anticipating a further rate increase in June and another before year end. This pushed the yield on two-year Treasuries to 2.49% by month end, its highest level since mid-2008.