What’s happened in markets?

FTSE All Share -0.60 2.03 4.48 4.93 41.47 3.11 6.22
Euro Stoxx 50 0.12 3.40 8.61 8.39 60.56 7.59 8.23
S&P500 -0.74 0.30 5.89 4.54 65.23 15.13 16.03
Japan Topix 3.14 4.35 12.40 11.54 60.62 7.89 10.87
MSCI Asia Pac. -0.73 -6.95 7.25 4.40 78.80 8.64 14.80
MSCI Emerg. Mkts. -0.80 -6.38 5.89 3.73 78.71 6.42 13.10
Jo’burg All Shares -2.99 -1.42 11.30 12.01 79.03 7.85 7.52
UK Gov’t Bonds -0.09 -1.30 -6.48 -7.13 0.15 2.82 2.99
US Gov’t Bonds -0.30 -1.93 -4.04 -4.34 -1.72 4.27 2.32
Global Corp. Bonds -0.17 -1.92 -3.17 -3.65 13.44 5.75 4.92
Emerg. Mkt. Local Currency Bonds 0.06 -3.63 -5.23 -5.31 16.21 1.28 3.92

Figures in the respective local currencies as at the end of trading on 19/3/2021.

The Fed’s latest forecasts, released on Wednesday 17 March, show the central bank expects rates to remain on hold until 2024, even as inflation is projected to move above its 2% target, to make up for the past when inflation undershot the target. Meanwhile, its other 2021 US forecasts see unemployment falling to 4.5%, gross domestic product expanding by 6.5%, and inflation spiking to 2.4%, before dropping back to 2% in 2022.

The economic data highlight of the week was the US retail sales figure for February, which showed a larger-than-expected fall, while January’s reading was revised up, offering a view that the overall economic picture is better than headline numbers suggest.Meanwhile, the Bank of England left rates unchanged. However, its committee stated that it was more optimistic about the near-term outlook, given global growth had been “a little stronger” than anticipated … and that the new US stimulus “should provide significant additional support to the outlook.”

In political news, the start of a third wave in Europe led to several countries announcing another lockdown and increased criticism of the EU’s vaccination programme, which lags that of the UK and US, and was made worse by the temporary suspension of the AstraZeneca vaccine on safety concerns. The European Commission’s President, Ursula von der Leyen, has, therefore, refused to rule out imposing export controls on vaccines destined for other customers, including the UK.

In markets, most regions posted negative performance, apart from Japan (+3.08%) and Europe ex UK (+0.39%). Style-wise, value (+0.22%) marginally outperformed growth
(-0.49%). Among sectors, healthcare (+1.14%) and consumer staples (+1.09%) were the best, while energy (-5.20%) and materials (-1.18%) lagged. Small capitalisation stocks
(-0.36%) slightly underperformed their large peers (-0.17%).

Latest Consensus Forecast
UK GDP (QoQ) 1.0  –
UK PMI 49.6 51.1
UK CPI (YoY) 0.7 0.8
EU GDP (QoQ) -0.7  –
EU PMI 48.8 49.1
EU CPI (YoY) 0.9  –
US GDP (QoQ) 4.1 4.2
US PMI 55.3  –
US CPI (YoY) 1.7  –

What’s happened in portfolios?

Markets continue to be torn as to how much they should be worried about the pandemic, while the S&P 500 closed the week of 15 March only very slightly lower than its latest all-time high on Wednesday 17 March. Investors, meanwhile, also do not appear too overly concerned, for now, as to the increasing bond yields, perhaps reflecting an understanding that some of the move higher in yields is as a result of stronger growth expectations.

US 10-year bond yields finished the week up +0.1% higher at 1.72%, with much of the move following the Fed meeting, although markets suggest investors still expect the Fed to tighten conditions sooner than 2024, in order to deal with a potential spike in inflation.

It’s also worth highlighting that oil prices fell nearly -7% during the week of 15 March, which weighed heavily on energy stocks. Although there was no obvious single catalyst behind the fall, concerns over the pace of recovery may well have played a role, given the increase in the numbers of COVID-19 cases around the world, which may set back the dates for economies to reopen and the demand for oil to pick up again.

What’s happening this week?

25 Mar • US Initial Jobless Claims | 26 Mar • UK Retail Sales | 26 Mar • US Personal Income