March proved a particularly good month for markets as central banks played ball. For once, there were few negative surprises. The threat of recession has become a secondary concern nowadays. Most economists feel we have skirted this problem, with naysayers more likely to be found in the middle of a paper than on the front page.
In the run up to March, traders had been frustrated as they sought greater clarity on interest rate cuts. This was duly provided on 20 March, when the Fed confirmed their dot plan, with three interest rate cuts planned for the year.
This was music to traders' ears as short-end bonds rallied and equity markets followed suit.
The Fed also raised GDP forecasts. While in the UK, the data showed more upbeat consumer and business sentiment. With elections set for later this year, it is certainly in the interests of Biden and Sunak to continue pulling rabbits out of their respective hats.
Unlike the Fed, the ECB and Bank of England continued to play their cards far closer to their chest, with little indication of timeframe or path. But from a market perspective, traders’ interests are more aligned with the Fed and optimism that the ECB and Bank of England will offer no material surprises.
On the other side of the world, maintaining its contrarian position, the Bank of Japan exited its negative interest rate policy in March by raising rates for the first time since 2007.
With the tailwind, this was an exceptional quarter for equities, as many markets recorded their best quarter in five years, with the S&P 500 up +10.2% and Nasdaq +9.1%. For the month, the S&P 500 closed +3.1% and the Nasdaq +1.8% - slightly disappointing compared to other markets as tech stocks underwhelmed after months of rallying hard, with Tesla, for example, falling over 12%. In Europe, the FTSE 100 was up 4.2% and the Dax +4.6%. While in Asia, the Nikkei 225 was +3.0% and China’s Shanghai Composite Index up only +0.4%.
Commodities also had a good month, buoyed by an increasing sense of optimism, with the Bloomberg Commodity Index +3.3%. Oil prices remained high this month, with WTI +6.3%, shrugging off news that the US has sizeable stockpiles, and Brent +4.1%. Away from oil and it was cocoa that was arguably the most talked about commodity, with West African supply shortages weighing on the sector and July London cocoa hit a record of £8,009.
Also hitting new highs was crypto, which topped out at $73,800 as retail flows accelerated, before tumbling down to 60,760 – again largely retail driven – then recovering to close the month back to $70,285, an increase of 14.6% for the month. The figure that really stands out is the quarterly gain, up a staggering +65%.