Global markets spring forward despite growth concerns
Market guidance from the US Federal Reserve (Fed) and the European Central Bank (ECB) on the likelihood of no interest rate rises over 2019, coupled with positive signals on the protracted US-China trade dispute helped propel global equities broadly higher in March, with the FTSE All World Index climbing by 3.4% in March (total returns in sterling).
Performance over March brought the curtain down on a strong first quarter for most major asset classes, with markets shrugging-off lower 2019 growth forecasts from both the Organisation for Economic Cooperation and Development, which revised down global GDP growth for 2019 to 3.3% from 3.5%, and the ECB, which reduced its Eurozone growth forecast to 1.1% from 1.7%.
US rate policy turnaround
The FTSE North America index rose by 3.9% in March (in sterling terms) as investors reacted to the Fed’s change in stance on interest rates. Signs of weakening in the US economy prompted the Fed’s Chairman, Jerome Powell, to indicate that, after three years’ of interest rate increases, US interest rates are likely to be on hold for the remainder of 2019 and that the next move may even be an interest rate cut.
US bond yields were a major talking point late in the month as ‘yield curve inversion’ took place for the first time since 2007. This occurs when the yield on a short-dated bond exceeds that of a much longer-dated bond – in this case, the yield on the three-month US Treasury bond exceeded that of the 10-year Treasury bond. This is often regarded as a warning sign for the economy, indicating a recession could be on the horizon. However, the inversion was relatively short-lived and did not cause a prolonged dent in market confidence.
Shifting political scenarios
Market watchers kept a keen eye on reports from the US-China trade talks and the political stalemate over the terms of the UK’s planned withdrawal from the European Union. Brexit uncertainty kept the relative value of sterling fluctuating throughout the month. Weaker sterling (relative to other major currencies) is good news for UK exporters and as around two-thirds of revenues earned by FTSE 100 companies derives from export sales, the pound’s struggles helped the FTSE 100 Index to rise by 3.3% in March, outpacing the more domestically focused FTSE 250 Index, which fell by 0.1%. Meanwhile, UK government bonds (gilts) gained 3.20%.
Slowing Eurozone growth
Despite signs of weakness across Europe, particularly in the manufacturing sector, and Italy’s ongoing struggle to emerge from recession, European equities performed relatively well: the FTSE Developed Europe (ex UK) Index rose by 2.7%. However, underlying nervousness over the Eurozone was evident in a surge in buying of German government bonds (bunds). Rising demand boosted bund prices and pushed yields into negative territory as investors were drawn to a perceived ‘safe haven’ asset.
China dominates emerging markets
In emerging markets, China was a strong performer, despite the government cutting growth expectations for this year to between 6.0% and 6.5%. The FTSE Emerging Markets Index rose by 3.6% in March. Chinese equities have been supported by government measures to boost the economy, as well as a decision by MSCI to include more Chinese shares in its indices. In developed Asia, Japanese shares also advanced, with the FTSE Japan Index adding 2.8% with gains curtailed by a strong yen, which hurts Japanese exporters.
Oil price gains
A rising oil price boosted both equity markets in which oil companies are major index components as well as the broader commodities index, with the Bloomberg Commodity Index rising 1.9%. Brent crude edged close to $70 per barrel, buoyed by output cuts by oil cartel OPEC and also the impact of US sanctions on oil producers Iran and Venezuela.
All index data supplied by Financial Express and expressed in total returns in sterling, unless otherwise stated.