MACRO
March was a strong month for markets, with almost all asset classes in positive territory. Economic data overall was positive, with job openings and nonfarm payrolls (the number of people employed compared to the previous month) coming in higher than economists forecasted. Inflation figures, however, were slightly higher than predicted, which in turn meant the markets pushed out their expectations of a first interest rate cut to later this year. The Federal Reserve (Fed), however, stuck to their stance that three rate cuts are expected by the end of 2024 (0.75%), even though they expressed concern that inflation was yet to hit their 2% target. They did however lower their expectations in 2025 from four rate cuts (0.1%) to three (0.75%).
The Bank of England painted a more dovish tone (more likely to cut interest rates) than they had previously, with Governor Bailey stating: “we’re not yet at the point where we can cut interest rates, but things are moving in the right direction”, meaning the interest rate could be cut from the current level of 5.25% in the coming months. Unlike in the US, inflation data in the UK came in lower than expected (3.4% vs 3.5% expected), which ties in to the Bank of England narrative.
In Europe, inflation figures are now at 2.6% i.e. almost at the 2% target that the European Central Bank (ECB) were aiming for. The ECB is expected to begin cutting rates very soon, after the Swiss national bank became the first of the developed countries to do so this month (rates cut from 1.75% to 1.50%). German and French PMIs (Purchasing Managers Index) (a gauge of manufacturing in both countries) showed disappointing figures in March which also will add fuel to the fire for a rate cut in order to boost their economies.
The Bank of Japan raised its benchmark interest rate for the first time in 17 years, moving from -0.1% to between 0 and 0.1%. The deflationary environment that had historically plagued Japanese markets have eased at least for the time being as well as relatively large wage hikes with trade unions, allowing the Bank of Japan to move rates into positive territory. Rates are however still very low compared to the global market, meaning prolonged weakness for the Yen.
EQUITIES
March saw another strong month for equities, with the S&P 500 posting a +3.22% gain for the month, translating into +10.55% for the year. The tech index NASDAQ was up 1.23% with a year to date gain of +8.72%. The technology and communication services were the largest contributors for the month, with the real estate sector being the only negative performer at -1.16%.
FIXED INCOME
The 2-year yield curve ended March at 4.63%, which was essentially where it sat at the beginning on the month. There was however some volatility during March as strong data coupled with disappointing inflation data was posted.
The 10-year yield curve was at 4.21% by the end of March, slightly down from 4.25% after the Federal Open Market Committee (FOMC) meeting.
ALTERNATIVES & CURRENCIES
Gold continued its strong rally in 2024 amidst emerging market Central Bank purchasing and investors holding as a hedge for potential dollar weakness going forward.
GBP/USD ended the month at 1.263 vs 1.266 at the beginning of March.
