Macro views

Market Reviews - March 2019 GBP

Discover our latest round-up of market news, featuring equities and both government and corporate bonds.
April 2019

Investment Content team

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Risk Disclaimer

Past performance is not a guide to future performance. The value of investments and income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

UK

The FTSE All-Share Index rose 2.7% in sterling terms during March. Brexit dominated headlines, with the EU granting the UK a short extension to its EU membership after the UK parliament rejected the terms of the withdrawal agreement. Sterling rose against most major currencies as a longer delay and/or a relatively soft Brexit appeared likely, though uncertainty abounded as to the UK’s next move. Domestic economic data was mixed, with retail sales registering a surprise increase in February, continuing to be underpinned by rising real wages. Official data showed the UK economy grew by just 0.2% in the three months to January, unchanged from the prior three-month period. In terms of sectors, tobacco (14.1%) and industrial metals & mining (11.2%) outperformed, while industrial transportation (-5.3%) and leisure goods (-2.9%) lagged.

Risk Disclaimer

Past performance is not a guide to future performance. The value of investments and income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

Europe

The FTSE World Europe ex-UK Index gained 2.6% in sterling terms in March. Eurozone economic data was generally weak, with survey data indicating that German factory output had shrunk by more than forecast in March, leaving eurozone manufacturing activity at its lowest level in five years. However, stocks were helped by a more dovish stance on the part of both the European Central Bank (ECB) and the US Federal Reserve (Fed). The ECB cut its 2019 growth forecast for the eurozone economy from 1.7% to 1.1% and unveiled a new round of stimulus in the form of targeted longer-term refinancing operations (TLTROs), which are viewed as directly benefiting eurozone banks. European stocks also found support from hopes that the US and China were nearing a resolution to their trade dispute.

US

The FTSE All-World North America Index advanced 3.9% in sterling terms over March, outperforming the global average. An inversion of the US yield curve highlighted concerns over the outlook for the US economy. Nevertheless, US stocks were boosted by a more dovish stance from the Fed and expectations that the US and China would soon resolve their trade dispute. Citing a broader slowdown across the global economy, the Fed amended its guidance to no longer forecast interest rate hikes for 2019 and ended its policy of automatic balance sheet reduction. Fourth-quarter US economic growth was downwardly revised to 2.2% from the prior 2.6% estimate. The February jobs report significantly disappointed forecasts, with the weakest US hiring since September 2017. Although core US inflation was muted, US wage growth reached a 10-year high in February.

Japan

The FTSE Japan Index returned 2.8% in sterling terms during March. Japanese stocks benefited from hopes that the US and China were near to resolving their trade dispute, as well as from signs that Chinese stimulus measures were gaining traction. Japanese economic data released during the month was mixed, with industrial output for February beating expectations and rising on the back of higher autos shipments. Overall exports dropped for a third consecutive month in February, with a fall in trade with the Asia region, despite an improvement in exports to China. Japanese core consumer inflation eased 0.1% to 0.7% year on year in February. The Bank of Japan left its monetary policy on hold, citing slower global growth and a challenging outlook for Japanese manufacturing and exports.

Emerging Markets

The FTSE All-World Emerging Index returned 3.6% in sterling terms over March. Emerging market stocks were buoyed by a more dovish stance from central banks and hopes that the US and China were close to resolving trade tensions. Citing a slowing global economy, the Fed amended its guidance to no longer forecast interest rate hikes for 2019 and ended its policy of automatic balance sheet reduction. China (4.3%) was additionally boosted by hopes that its government’s stimulus measures were gaining traction. India (11.6%), however, was by far the best-performing market, boosted by rising expectations that Prime Minister Narendra Modi would secure a second term in the upcoming elections. On the negative side, Turkey (-12.9%) sharply underperformed as its currency came under renewed pressure from domestic political and economic uncertainty.

Asia Pacific ex Japan

The FTSE World Asia Pacific ex Japan Index rose 2.2% in sterling terms during March. Asia Pacific stocks were supported by hopes that the US and China were nearing a resolution to their trade dispute, as well as a more dovish stance from central banks. The Fed amended its guidance to no longer forecast interest rate hikes for 2019 and ended its policy of automatic balance sheet reduction. China’s manufacturing survey gauge unexpectedly increased in March, raising hopes over the impact of Chinese stimulus measures. Taiwan (4.4%) was among the best-performing markets over the month, owing to strength in its technology sector. Hong Kong (3.8%) benefited from the apparent easing in trade tensions. Malaysia (-0.8%) lagged against a relatively subdued domestic economic outlook and disappointment regarding the progress of government reforms.

Government Bonds

Global government bond yields declined over March as central banks adopted a more dovish stance in the face of slowing global economic momentum. The US yield curve inverted for the first time since 2007, highlighting concerns over the US economic outlook. Meanwhile, yields on 10-year German bunds turned negative for the first time since 2016. Citing the slowdown across the global economy, the Fed amended its guidance to no longer forecast interest rate hikes for 2019 and ended its policy of automatic balance sheet reduction. The ECB cut its 2019 growth forecast for the eurozone economy from 1.7% to 1.1% and unveiled a new round of stimulus in the form of TLTROs. The Fed’s preferred measure of inflation eased to an 11-month low of 1.8% in January.

Corporate Bonds

Corporate bonds generated positive returns over March, outperforming government bonds. While risk assets performed well, global government bond yields also declined as both the Fed and ECB adopted more dovish stances. US economic data was mixed, with some slowing momentum, while the eurozone economy continued its weak run. Inflation was largely subdued across both economies. An inversion of the US yield curve highlighted concerns on the outlook for the US economy in 2020. Citing a slowdown in global growth, the Fed ceased to project interest rate hikes for 2019 and ended its policy of automatic balance sheet reduction. The ECB unveiled a new round of TLTROs, stimulus viewed as directly benefiting peripheral eurozone banks. Among the new offerings were bonds from AB InBev and Volvo Cars.
  
*Source: Lipper to 29 March 2019, total return. Indices rebased to zero at 28 February 2019.
 
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