By Jan Faure
Global equity markets made further gains in March, capping off a strong first quarter, as investors looked ahead to the prospect of a rate easing cycle commencing mid-year. In the US, the S&P 500 gained 3.1% while the tech-heavy Nasdaq Composite index added 1.8%. A stronger than expected US economy continued to support US equities. In Europe, the Euro Stoxx 50 index gained 4.2%, reaching its highest level in over 23 years. The UK’s FTSE 100 gained 4.2% for the month, contributing to a modest 2.8% increase for the quarter.
In Asia, Japan’s Nikkei 225 surpassed the 40,000 index level for the first time, ending the month with a 3.1% gain (+20.6% YTD). The weak yen (lowest against the dollar in 34 years) has been a major contributing factor to the Nikkei’s strong rally over the last 12 months. In China, the CSI 300 index gained 0.6%, while Hong Kong’s Hang Seng added 0.2%. Investor confidence in these regions remained subdued due to economic and policy uncertainties.
During March, major central banks including the US Federal Reserve (Fed), European Central Bank, Reserve Bank of Australia and Bank of England held interest rates steady as expected. A noteworthy development was the Bank of Japan’s decision to raise rates for the first time since 2007 to counter rising wages, high inflation and a robust Japanese economy. This reflects confidence in Japan’s economy, marking a significant turning point from years of deflation and economic stagnation.
In a Congressional testimony, Fed Chair Jerome Powell reiterated the Fed's patient approach, emphasising that rate cuts will only be considered once inflation substantially reaches 2%. While the Fed held rates steady once again, the FOMC committee reaffirmed its expectation of three interest rate cuts (25 basis point each) this year. This is half the rate cuts the market was pricing in at the beginning of the year, which explains why yields on US treasuries have ticked higher, and why bond markets have lagged. The Bloomberg Global Aggregate Bond Index, an indicator for global investment grade bonds, declined 2.1% for the quarter.
Data continued to showcase the resilience of the US economy. However, higher-than-expected inflation data has prompted investor speculation on the timing and quantum of potential interest rate cuts this year. Sharp upward revisions to projections of US GDP remains a key driver for US equities, which have continued to perform well despite the Fed's restrictive monetary policy.
In commodity markets, brent crude advanced 4.6% in March (+13.6% YTD) amid escalating tensions in the Middle East, which poses renewed risk to the inflation outlook. Gold rallied to a fresh all-time high in March, ending the month on $2,229/oz (+8.1% YTD), benefiting from expectations of future interest rate cuts through the second half of the year. Safe-haven demand amidst elevated geopolitical tensions in key oil and gas producing regions provided additional support.
Table 1: Global Indicators – Local reporting currencies
