Heightened concerns about the level of Greek sovereign debt and the ability of the Greek government to carry through austerity measures, coupled with fears over contagion affecting other Eurozone economies, led to renewed volatility in equity markets in April as risk aversion rose sharply. Elsewhere China’s first quarter GDP growth hit 11.9% (year-on-year), reflecting generally positive economic date from the region, while the US economy grew by a first quarter annualised rate of 3.2%

In the UK investor sentiment was affected by the prospect of a hung parliament and by European sovereign debt issues, and equity markets ended April 1.4% lower after bouts of volatility. Smaller companies did best, with a rise of 4.4% in the FTSEC Small Cap ex IT index. The FTSE 250 and FTSE 100 indices finished respectively up 2.3% and down 2%. Unemployment rose to 2.5 million, although 32,900 fewer people were claming unemployment benefits. The year-on-year retail price index rose to 4.4% in March, responding to inflationary pressures, although interest rates were held at 0.5% and the quantitative easing programme was maintained at £200bn.

US markets paid more heed to strong company results and continuing positive economic figures, and ended April higher. The S&P 500 and Dow Jones indices finished modestly higher by 1.5% and 1.4% respectively, while the NASDAQ rose by 2.6% and the smaller companies Russell 2000 index recorded the best gain of all at 5.6%. Preliminary first quarter GDP figures showed the US economy growing at an annualised rate of 3.2%, largely due to increased consumer spending on the back of greater optimism about business conditions and employment prospects. Manufacturing figures continued to improve, although capacity usage was still only 73.2%, helping to dampen inflation. Markets were also boosted by the Federal Reserve’s announcement – against a background of high unemployment, moderate increases in income and a downward pressure on prices – that it would keep interest rates low for “an extended period”.

Despite both business and consumer confidence at a two-year high, both European markets and the Euro fell during an April dominated by nervousness over Greece’s sovereign debt and the possible contagion affecting other southern European economies. Although the Greek government accepted an E110bn EU/IMF rescue plan, markets remained unconvinced that the Greeks would have the resolution and stamina to fully implement the contingent austerity measures and endure the pain. In contrast Germany benefited as a cheaper Euro fuelled an export-led recovery, while across the region the measure of current factory output reached its highest level since 2000.

Markets in Japan were also affected by sovereign debt worries and were subdued over April, despite strongly positive corporate news underlining a sharp turnaround in profitability in many businesses, notably car makers and financials. While inflation remained negative, both retail sales and household sentiment rose in March as the benefits of the export-led recovery were felt in the broader economy.

Similar sovereign debt concerns led to Asian markets producing mixed results in April, although the strength of the recovery was evidenced by first quarter GDP growth of 11.9% in China. The Chinese government acted to curb speculation in the resurgent property market, however, by raising mortgage interest rates and imposing higher minimum deposits. Monetary policy was also tightened as central banks in Australia and India raised interest rates as strong economic recoveries in both countries reduced the need for supportive rate settings.

Emerging markets lost some momentum as worries over contagion from Europe’s debt crisis affected investor confidence, although positive economic data and corporate earnings helped the MSCI Emerging Markets (US$) Index close 1% higher on the month. Asian emerging equities performed best followed by the EMEA (Europe, Middle East and Africa) sector, while Latin America was (unusually) in third place.