Market Commentary March 2014
Global equity markets posted positive returns over the month with developed markets delivering strongest returns. US equity markets surpassed recent market heights while in the UK, economic growth was upgraded for the fourth consecutive period, encouraging market gains.
The European Central Bank president emphasised his commitment to avoid deflation in Europe. Asian and emerging markets were positive with the latter suffering from conflict between Russia and the Ukraine. Within fixed interest markets, yields and prices were much unchanged following a quiet month in the asset class.
US equity markets closed at an all-time high as investors digested stronger than expected consumer spending figures and manufacturing data. US unemployment was announced at 6.6% in December, falling from 6.7% the previous month. The Federal Reserve reassured that a fall in unemployment past 6.5% will not trigger an instant interest rate rise. The House of Representatives met February’s deadline to raise the US debt ceiling until March 2015, allowing the Treasury to borrow additional funds.
European equity markets were positive following encouraging macroeconomic data. Mario Draghi, President of the ECB, emphasised that risk of deflation would not be ignored in the banks monthly meeting. The bank added that recent disinflation was attributable to falling food and energy prices. Eurozone fourth quarter GDP was announced at 0.3%, higher than expected with France, Germany, Portugal and the Netherlands all posting better than expected economic growth. Unemployment was announced at 12% in January, in line with expectations. Matteo Renzi was confirmed to be Italy’s new Prime Minister pledging millions in tax cuts and more generous unemployment benefits.
UK equity markets experienced gains with economic growth upgraded in the largest run of upgrades since 1997. UK fourth quarter GDP was announced at 0.7%, in line with initial forecasts. CPI inflation was announced at 1.9% in January, falling from 2% due to downward pressure from recreation & culture, furniture & household and alcohol & tobacco sectors. Unemployment nudged higher to 7.2%, from 7.1%. The Governor of the Bank of England announced that the bank would not hike interest rates ‘for some time to come’ with the base rate potentially reaching 2% by 2017. UK house prices increased 9.4% over the year leading up to February, according to data provided by Nationwide. This marks the largest annual gain since May 2010.
Asian equity markets provided subdued returns amid mixed macroeconomic data. China registered strong trade data over the month with exports increasing 10.6% and imports to 10% over the year, taking into consideration distortions due to the Chinese New Year. China’s renminbi currency experienced a sharp fall towards month end reflecting unwanted intervention by the Chinese central bank. Japanese equity markets posted negative returns as fourth quarter GDP was announced at 0.3%, lower than initial forecasts.
Emerging market equities were positive, albeit lagging behind developed markets. Europe, Middle East and Africa all led market gains while Latin America and Russia had a negative impact on the broader market. Brent crude oil and natural gas prices both rose following concerns over supply due to the issues faced between Russia and Ukraine. South African equity markets were strong led by mining companies and exporters due to falls in the rand. In Brazil, interest rates were increased from 10.5% to 10.75% while in Chile, rates were cut from 4.5% to 4.25%.
Fixed interest markets were fairly quiet over the month with yields and prices remaining relatively constant. Spreads on high yield debt and peripheral eurozone bonds fell, leading to higher total returns. In the US, government bond yields rose initially following the announced fall in unemployment. This was recovered later in the month as investors sought safety after disruption between Russia and the Ukraine.