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Market Snapshot - March 2024

3 months ago

In brief

The Swiss National Bank (SNB) became the first major central bank to reduce interest rates this cycle. The SNB reduced rates by 25 basis points (bps) to 1.5%, its first cut in nine years, after Swiss inflation fell to 1.2% in February, marking the ninth consecutive month that prices have been within the 0-2% target range.

The US Federal Reserve (Fed) kept rates on hold at its March meeting and maintained its guidance for three rate cuts of 25 bps in 2024. Financial markets have now moved in line with the Fed’s own projections, having started the year forecasting up to six US rate cuts.

After months of speculation, the Bank of Japan (BoJ) finally exited its negative interest rate policy and ended yield curve control in the bond market. The decision came after annual wage negotiations awarded unionised Japanese workers an average pay rise of more than 4%, the largest in over thirty years.

The Markets

Equities

Global equities rallied, with the MSCI All Countries World Index rising 3.14% in USD terms and many markets touching fresh record highs. The rally brought the strongest first quarter returns in five years. Japanese stocks further extended their year to date gains (TOPIX +4.29%). European shares were also among the best performers, buoyed by signs of improving economic data (MSCI Europe +3.94%). Meanwhile, US equities were in line with the global average (S&P 500 +3.22%). After surging in February, Chinese stocks posted another month of positive returns (MSCI China Index +1.05%).

Bonds

Global bonds moved higher, as central banks continued to suggest that rates would be cut this year and appeared little concerned about a pick up in inflation. The 10 year US Treasury yield closed the month at 4.20%, a decline of 4 bps over the month, while the 10 year German Bund yield fell 12 bps to 2.30%. UK bond yields fell even more, after lower than expected UK inflation for February opened the door for the Bank of England to cut rates. Corporate bonds outperformed government debt, with credit spreads narrowing to the tightest levels in more than two years.

Currencies

The US dollar appreciated against other major currencies over March, with the Dollar Index gaining 0.37%. The euro also rallied against the Japanese yen. While the BoJ finally increased rates to 0-0.1%, it emphasised that rates would remain in this range until inflation expectations had sustainably achieved its 2% target.

Commodities

Oil prices, as measured by Brent crude, rose 4.62% to close the month at $87.00 as hopes faded of a Middle East ceasefire. Gold prices jumped 8.12%, moving above $2,200 a troy ounce for the first time on record.

Market Volatility

Market volatility

Volatility fell modestly over the month, with the Vix Index closing down 2.9% at 13.01. The index remained below the 20 level which is usually viewed to be an indicator of market stability.

Responsible investing

The US Securities Exchange Commission enacted a rule that requires companies to disclose greenhouse gas emissions that are deemed material to their revenue. The rule falls short of Europe’s more stringent Corporate Sustainability Reporting Directive, but is nonetheless expected to be challenged by the US Chamber of Commerce.

On the radar

  • The rally in AI related US stocks could continue to fragment. While Nvidia and Meta Platforms (two of the “Magnificent Seven”) have consistently  powered ahead, Apple and Tesla have shown considerable weakness over the last couple of months.
  • The advance in US stocks could continue to broaden into other sectors, although the market remains vulnerable to a correction if inflation proves sticky. The US economy has remained resilient, despite the sharp hike in rates over the last two years, and recent inflation data has highlighted continued price pressures.
  • In China, signs of continuing improvement in the economy will be closely watched. This follows a 10.2% rise in profits earned by Chinese industrial firms in January and February, with exports and imports also beating forecasts, while the composite purchasing managers’ index touched its highest level since May 2023.

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