Three main factors have supported their performance:
Firstly, central banks (particularly the Fed) have kept their message unchanged, aiming for interest rate cuts later in the year. For the Fed, that should mean three cuts, probably starting in June. That gives some much-appreciated visibility to investors.
Secondly, despite relatively high-interest rates, the economy has continued to do well. In the USA, growth remains solid. In the Eurozone, the economy has proved more resilient than expected, and, Germany aside, the downturn in economic activity remains limited.
Last but not least, the mania for all things AI-related remains unabated, supporting the price of any stock associated with this particular technology.
Taken together, these factors have supported stock market valuations, with the US market gaining 3,1%, but other markets also did well, like Japan up more than 3%, among many others.
More globally, a Fed that lowers its rate less often than was expected just a few months ago means less room for Emerging market central banks to follow an easy monetary policy. Those who choose to do so face enhanced risks. The Brazilian central bank has cut its Selic reference rate by another 0,5%, bringing it to 10.75%. The real and the Brazilian stock market (-0,7%) both fell in anticipation of that move.
The performance of bond markets has been more subdued, with no significant changes.
Japan has had the most significant loss. The end of negative interest rates in Japan has failed to boost the currency. Interest rate differentials vis-a-vis the rest of the world remain wide, favouring other currencies. As such, the yen remains under pressure, falling against the euro. Since interest rates have barely moved, JGBs have dropped around 1%.
So overall, not much has changed in world markets in March. Let’s see what will happen in the coming months.
