Données de marché
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Economic and Market overview: March 2017
A spring-time surge in inflation was a key theme for March as price rises blossomed across developed markets.
The month in numbers:
• Five: The number of Fed interest rate rises expected in 2017 and 2018, according to ‘dot plot’ forecasts.
• Zero: The number of pro-Free Trade references in the G20 communiqué from the Baden Baden summit.
• 2.3%: The UK inflation rate in February, ahead of the Bank of England’s 2.0% target range.
In the UK, inflation jumped to 2.3% in February from 1.8% in January, overstepping the Bank of England’s 2.0% target. In the eurozone, unemployment continued to fall, hitting 9.5% from 9.6%, a near eight-year low. Eurozone inflation remained in positive terriritory with a 1.5% reading in March.
In the US, meanwhile, rate rises were the name of the game with the US Federal Reserve pushing up its target overnight interest rate by 25bps to between 0.75-1.0%. This was its second increase in four months and market expectations are for at least a further two rate rises through the remainder of 2017.
Against this backdrop, the FTSE All World Index climbed 1.1% for the month, equating to a 17.9% return over 12 months.1 On a regional basis, eurozone equities offered the best performance, with the index climbing 5.5% in March as investors responded to recent positive economic data. In contrast, the FTSE All World Americas, All-World Latin America and the All-World North America indices gave up some of their strong performance over the final quarter of 2016 to each eke out just a 0.2% gain for the month. On a sector basis, technology stocks surged ahead, climbing 3.0% in March to add to February’s 4.6% gain. Oil & gas and financials took a breather from 2016’s market leading returns, rising just 0.2% apiece.
On the political front, the absence of pro-free trade language in the G20’s communiqué from its Baden Baden summit was a departure from recent norms and was widely interpreted as a hint of things to come.
NORTH AMERICA: From ‘Trump Bump’ to ‘Trump Slump’?
President Trump’s failure to push through a cornerstone healthcare bill was a key development in the US in March. The bill was widely perceived as a litmus test for the new president’s ability to effect legislative change, and so its failure provided investors – at least those who had been banking on tax cuts, higher infrastructure spending and lower regulation as the catalyst for economic growth – with pause for thought.
In response to the uncertainty, and after reaching multiple record highs since President Trump’s November election, US equities faltered, gaining just 0.2% in March. Conversely, US Treasury yields fell across the maturity spectrum, with yields on 10-year, 30-year, and 2-year securities declining to 2.4%, 3.1%, and 1.3%, respectively.2
On the inflation front, Fed Chair Janet Yellen accompanied the March interest rate rise with the following comment: “We have seen the economy progress over the last several months in exactly the way we anticipated. We have some confidence in the path the economy is on. We have not discussed in detail potential policy changes that could be put into place and we have not tried to map out what our response would be… We have plenty of time to see what happens.” Despite Yellen’s noncomittal approach, ‘dot plot’ forecasts continued to map out at least two further rate hikes in 2017 with an additional three in 2018. Payrolls data added grist to the rate rise mill, showing lower unemployment numbers along with 2.8% annual wage growth for February.
Elsewhere in North America, Canadian equities rose 1.1%, while Mexican equities surged to a 3.4% return.
EUROPE: Dutch elections; Article 50
Politics remained front and centre in Europe in March as – in a boon to political moderates across the Continent – Dutch voters eschewed the charms of Geert Wilders’ populist Freedom Party (PVV) to elect Prime Minister Mark Rutte's governing centre-right VVD.
Positive eurozone economic data, meanwhile, contributed to a broadly optimistic mood. The finalised manufacturing Purchasing Managers’ Index (PMI) rose to 56.2 in March from 55.4 in February. Year-on-year, producer prices were up 4.5% in February, beating January’s 3.9% rise.
European Central Bank board member Benoit Coeuré chipped in with his own upbeat message on the gathering momentum behind eurozone economic data, noting: “It's obvious that the financial sector, and other economic actors and especially governments must prepare [for higher interest rates]… I hope eurozone governments know [they] will not stay at current levels.”
Core eurozone stock markets responded in kind: Spanish equities (up 10.4% for the month) offered the best returns globally, but Italy (8.8%), Portugal (6.9%), France (5.7%), the Netherlands (4.8%) and Germany (3.9%) also performed well.
In the UK, the triggering of Article 50 – the starting gun for Brexit negotiations – dominated headlines. Scottish MPs voted 69 to 59 in favour of the Scottish Parliament seeking permission for a referendum before the UK leaves the European Union.
Against this background, the UK manufacturing PMI dropped to a four-month low of of 54.2 in March from 54.5 in February, while UK equities returned 1.2%.
LATAM: Brazil’s recession bites
In Brazil, the now two-year-old recession continued to bite, with the Central Bank saying economic activity fell 0.26% in January following on from December’s 0.32% decline. Brazilian equities were similarly lacklustre, returning -2.6% for the month, the worst performance globally on a country-specific basis.
Nonetheless, leading economic data pointed to brighter times ahead, with the manufacturers’ PMI rising to a seasonally adjusted 49.6 in March, its highest level in over two years.
Meanwhile, Finance Minister Henrique Meirelles said he expected to be able to lower the country’s inflation target for 2018 as early indications pointed to weaker consumer prices in March. Meirelles’ comments followed January inflation data showing a fifth consecutive monthly decline in consumer prices.
Elsewhere in Latin America, a melt-up in copper prices helped push Chilean equities to a 10.0% return in March. Colombian equities returned 3.8% while Peruvian equities fell 1.3%.
ASIA PAC: China’s growth expectations grind lower
Chinese equities returned 1.7% in March against a background of disappointing economic data. The Caixin/Markit manufacturing PMI fell to 51.2, missing forecasts, while exports fell by 1.3% for the year to February. In remarks prepared for the annual opening of China’s parliament, Premier Li Keqiang forecast GDP growth of 6.5% in 2017. This is below 2016’s 6.7% figure, which itself was the lowest rate of growth in 26 years. Meanwhile, non-financial outbound investment fell by 52.8% in the year to February as regulators continued to crack down on cross-border capital flows.
Japanese economic indicators painted a mixed picture. The Bank of Japan’s Tankan index for larger manufacturers' business confidence climbed to +12 in March, its second quarterly improvement following December’s +10 reading. The non-manufacturer’s index followed suit, rising for the first time in six quarters to hit a reading of +20.
Less positive was the Markit/Nikkei manufacturing PMI, which fell to 52.6 in March from 53.3 in February. Core Consumer Price Index data was also uninspiring, rising just 0.2% from a year earlier. While this represents the fastest annual pace of growth in nearly two years, it remains far short of the Bank of Japan’s stated target of 2% inflation. In response, the central bank voted to maintain its short-term interest rate target of -0.1%. Japanese equities were broadly flat, losing 0.6% for the month.
South Korean equities climbed 3.8% despite a month that saw the impeachment of President Park Geun-hye on corruption charges and a Chinese boycott in protest at the deployment of a US anti-missile system.
COMMODITIES: Rising US oil rig count
West Texas Intermediate (a proxy for global oil pricing) fell back from its February closing price of above US$54 a barrel, to US$50.60 a barrel by the end of March. The Baker Hughes US rig count – a measure for the number of active US rigs – helped explain the price decline. By the end of March it revealed an 11th-straight increase in the number of active rigs as producers responded to firmer pricing by opening the taps. The most recent count – of 662 active US oil rigs – contrasts with a count of below 400 at the height of the oil price collapse in February 2016.
For gold, March was a story of steep decline followed by a sharp recovery as some of the lustre of the Trump trade wore off and investors returned to assets they perceived as less risky. Versus the US dollar, the precious metal has gained 7.1% since the start of the year, finishing the month at US$1249.2 a troy ounce.
Elsewhere, the key gainers in commodities were cocoa (up 9.6% in US dollar terms over the month), lead (8.6%), and live cattle (3.6%). The worst performers included sugar (-10.2%), nickel (-8.7%) and soybean meal (-7.7%).
In currencies, the Mexican peso continued along the road to recovery, gaining 7.4% against the US dollar. As in February, the decision of Banxico, Mexico’s central bank, to raise its benchmark interest rate was the key driver of returns. It marked the fourth consecutive rate hike since US President Donald Trump’s election in December with a 25 bps increase in its headline rate. On the negative side of the ledger, the New Zealand dollar (-2.6%), the Norwegian Krone (-2.4%) and the South African Rand (-2.1%) witnessed the largest declines against the Greenback in March.
1 All data sourced from the FTSE All World Index and Bloomberg and is in local currency terms as of 31 March 2017, unless otherwise stated.
2 Bloomberg data, as of 28 March 2017
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