March Market Update
March Market Update
As the first quarter of the year ended, the impact of the COVID-19 pandemic on risk markets almost seemed non-existent.
Over March we saw US markets return to all-time highs, further upgrades to the global economic outlook, additional US stimulus packages and central banks reaffirming monetary policy and inflation expectations.
COVID-19 Vaccinations
A year on from the initial global mass lockdowns of economies, the world is well on its way down the path of inoculating its populations. While the United States is leading the charge by total number of citizens inoculated, the likes of Israel and Chile have the higher percentage of total population vaccinated. As at the end of March 4.35% of the world’s population, (just under 339 million people) have received at least 1 dose of a COVID-19 vaccine.
Unfortunately, in Australia, we are somewhat behind our original and since revised plan due to supply issues. As at the end of March, just under 1 million doses had been issued, which was 25% of the original plan. However, despite this, Australia has been able to keep any localised outbreaks under control.
While the US and UK look forward to a path out of their winter lockdown, unfortunately many key European nations once again face their third and fourth lockdowns. By the end of March, France’s daily infection rate was reaching heights of +40,000, while Germany was not far behind, at just over 17,000 daily cases. What is becoming increasingly evident for many of these nations, it is a race against time to inoculate the population to once again get the new wave of outbreaks under control.
As for Japan, they are looking ahead to holding the postponed 2020 Summer Olympics in July, however, without spectators. This news is now starting to look like a probable outcome as towards the end of the month the country is battling to get their fourth wave under control.
Australia
At the March 2 Reserve Bank of Australia (RBA) Board meeting, it once again appeared to be a rinse and repeat of the previous month’s meeting. The RBA left the cash rate unchanged at 0.10%, in addition maintaining its $100bn bond buying program. The Board reiterated its core messaging from the February 2 statement - the Board is not expecting to increase the cash rate until 2024 “at the earliest”. In response to rising bond yields the RBA added, “The Bank is prepared to make further adjustments to its purchases in response to market conditions.” On inflation said, “CPI inflation is expected to rise temporarily because of the reversal of some COVID-19-related price reductions.” So, despite the strong rise in house prices in key east coast capital cities and rally in bonds yields towards the end of February, the RBA once again reaffirmed they do not expect to lift rates for the next 3 years.
Ross Sergi from Seross Finance, said “despite these RBA statements, we did see many big bank lenders look to increase their fixed term rates on 3 and 4 year retail loans on the expectation that interest rates will increase quicker than the RBA guidance.”
Who will be right? Only time will tell.
Our Newcastle & Lake Macquarie Financial Planning Advisors are seeing some clients looking to to split their mortgage and consider locking in a proportion of their loan to provide them with clarity if rates were to move. In addition, this also provides the opportunity to look in the remaining proportion in 2-3 years should the RBA be correct and rates remain unchanged.
Despite March seeing the end of the JobKeeper and JobSeeker, we continued to see strong signs of economic recovery.
Australia’s success in containing COVID-19, the promise of vaccine rollouts bringing an end to the pandemic - and support from stimulatory government policies have all contributed to the sustained lift in sentiment.
United States
March saw the approval of the largest stimulus package on record for the US, with the Senate approving the USD $1.9 trillion package. As President Biden has been unable so far to lift the legislated minimum wage, this is a multi-year package aimed at improving the lives of the lower working class, targeting those most impacted by the pandemic. Towards the end of the month, this stimulus was followed by the announcement of a USD $2 trillion infrastructure spend, with a key focus on renewables and sustainability. Essentially the proposal would increase corporate taxes to offset the spend to pay for fixing roads and bridges, boosting research, lifting aged care quality and tackling climate change.
As for other economic data, the US unemployment rate fell to 6% in March from 6.2% in the previous month.
The unemployment rate has been falling steadily in recent months after reaching an all-time high of 14.8% in April 2020. However, many believe it has been understated by people misclassifying themselves as being “employed but absent from work”. The number of unemployed people fell by 262k to 9.71 million.
Minutes released from the most recent FOMC meeting showed the Fed officials commented on the notable rise in Treasury yields and generally viewed it as reflecting the improved economic outlook, some firming in inflation expectations, and expectations for increased Treasury debt issuance. Furthermore, the outlook for inflation is seen broadly balanced while supply disruptions and strong demand could push it up more than anticipated.
The Fed left the target range for its federal funds rate unchanged at 0-0.25% during its March meeting and, similar to the RBA, signalled a strong likelihood that there may be no rate hikes through 2023.
Asia
As China headed back to work after what was a second year of very subdued lunar new year celebrations, economic data continued to show China was growing - but at a slower pace than what was referenced mid last year.
For India, both the total value of Imports and exports increased dramatically, showing higher levels of spending and economic growth.
In Japan, in its March meeting, the Bank of Japan (BoJ) left its key short-term interest rate unchanged at -0.1%, and maintained the target for the 10-year Japanese government bond yield at around 0%. Despite this, the BoJ decided to widen the band at which it allows long-term interest rates to move around its 0% target, amid efforts to make its ultra-easy policy more sustainable on the back of the COVID-19 pandemic and a continued battle to boost inflation.
Australian shares
With the year well underway, March saw a month of strong returns in the market, consolidating a strong first quarter of 2021.
The ASX300 Accumulation returned +2.30% for the month and 38.34% over the past 12 months, while the ASX Small Ordinaries Accumulation gained +0.79% over the month and 52.15% over the past year.
March saw a continuation of sector rotation from high P/E growth sectors to beaten up cyclical sectors as the economy continues to open up and benefit from the vaccine rollout globally on eventual hope of a speedy economic recovery.
International shares
International share markets consolidated on the strong returns of February, with US markets hitting all-time highs once again.
Promising economic data, positive momentum in vaccination programs, and a path out of winter lockdowns drove this performance.
The MSCI World ex Australia Unhedged index ended the month up +5.09%.
The United States saw the initial benefits of the stimulus cheques hitting bank accounts.
The S&P ended the month up +4.38%, the Dow Jones +6.78%, with the tech heavy NASDAQ the weakest of the three ended still positively at +0.48%.
The respective 1 year returns on the three US market is 56.35%, 53.78% and 73.40%.
European shares were similar, the Euro STOXX up +6.08%. France’s CAC 40 and Germany’s DAX Index ended up +6.38% and +8.86% respectively. With the 1 year returns on these respective markets being 34.22%, 38.01% and 51.05%.
Asian Share markets told a similar story this month. Japan’s Nikkei once again hit all-time highs, aided by a +1.35% return over the month This brings the 1 year return to +56.58%. China’s Shanghai Composite finished the month down -1.91% and the Hang Seng down -2.08%. The Korean KOSPI continued its upward trajectory ending up 1.61%, bringing its one-year return to 74.48%.
While these one-year returns look so impressive and painting a very different story to the likes of this time last year as the large drawdown experienced in March has now rolled off the 1 year return number..
source: BT