Market Insights: Monthly Market Review (March 2015)Contributors Kerry Craig, Global Markets Insights Strategy Team
Global growth dynamics shifted in the first quarter. Economic momentum in the eurozone started to build as economic data surprised on the upside. Meanwhile, the US was weaker than expected in almost every aspect except the labour market. However, it is the developments at the European Central Bank (ECB) and the US Federal Reserve (the Fed) that continue to hold market attention.
Markets and the media continue to obsess over the timing of the first rate hike from the Fed, despite weakening global inflation as a result of falling oil prices and monetary policy easing by more than two dozen central banks. The divide in monetary policy is being reflected in currencies and equity markets. The US dollar flirted with parity against the euro, supporting European equities, which rallied 15.4% over the first quarter, but hampering US markets, with the S&P 500 eking out a 1.0% gain. The Barclays Global Aggregate Index declined 1.9%, but this disguises decent gains from highyield markets and European government bonds (all in local currency terms).
Investors were reminded of the impact that currencies can have on returns over the first quarter as the US dollar gained 12.7% against the euro, reaching a 12-year low of USD 1.0456. The start of a sovereign bond-buying programme by the ECB, combined with increasing expectations of a Fed rate hike, had amplified the consensus for dollar strengthening this year. However, disappointing reports on retail sales, durable goods and the state of the housing market brought the strength of the US economy-and the timing of the first interest rate hike-into question, curtailing the dollar’s rally. Meanwhile, the surge in the dollar held back US corporate profits for the fourth-quarter earnings season (as did falling energy prices) and is likely to negatively affect first-quarter results, with companies already issuing profit warnings.
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