Key takeaways
Banking sector woes hit investor sentiment initially, though Europe, US, Asia and fixed income markets ended the month up.
Interest rates increased by 0.5% in Europe, while rising 0.25% in the UK and the US. The Fed signaled further rises were unlikely.
The UK economy grew 0.3% in January, after contracting in December, meaning that the country would avoid recession.
Summary
March was a month of mixed fortunes for global equity markets.Trouble in the banking sector was the big news, as the US’s Silicon Valley Bank collapsed after mass withdrawals. In Europe, UBS took over Credit Suisse, as the latter suffered a catastrophic liquidity crisis. This sparked fears of a potential global banking crisis, but these have since been somewhat allayed.
Europe, The US, Asia and emerging markets all advanced. The UK lagged as inflation persisted and the banking sell-off hit the region’s equity markets hard.
Europe
Despite an equity-market sell off in the first half of the month (because of the troubles in the banking sector), European markets ended the month up.
The big story was the UBS takeover of Credit Suisse, in an all-share deal brokered by the Swiss regulator, government and National Bank (SNB). The potential writedown of UBS’ Additional Tier 1 (AT1) bonds was a factor in the CHF9 billion guarantee the bank was given as part of the deal.
Elsewhere, the European Central Bank (ECB) raised interest rates by an additional 0.5%, despite market volatility and inflation falling to it’s lowest level (6.9%) in a year.
The UK
In the UK, markets ended down as the region was hit hard by the Silicon Valley Bank (SVB) and Credit Suisse saga, and the subsequent bank sell-off.
Inflation also unexpectedly rose in February, by 0.3%. This was driven mainly by food price inflation, which hit a new record high in the face of salad and cucumber shortages. Despite this, the Bank of England (BoE) expects inflation to start falling quickly ahead of summer.
There was good news for the economy as it grew 0.3% in January, after contracting in December. This effectively means that the UK avoids recession. Children going back to the classroom, football schedules and a strong month for private health care all contributed.
The US
It was a tale of two halves for US equity markets in March. The first half was besieged by the Silicon Valley Bank (SVB) crisis and persistant inflation, which drove down investor sentiment. In the second half, big technology firms and expectations for tempered interest rates drove recovery.
SVB’s collapse was sparked by $42 billion worth of it’s deposits being withdrawn in one day. SVB had most of it’s deposits invested in long-dated securites, which had lost value because of the Federal Reserve’s (Fed) raft of interest rate increases.
Asia
Asian equities advanced in March, with China, Korean and Taiwan the leading contributors. Investor confidence improved after troubles in the banking sector had limited impact on Asian financials.
Taiwan and Korean markets were bolstered by signals from the US Federal Reserve (Fed) that it was toning down their stance towards inflation. The Fed suggested it’s aggressive pace of interest rate rises might soon be over.
Chinese equities ended the month higher, thanks to Beijing’s further support for the internet and gaming sectors. The lack of opposition by the government toward Alibaba’s plan to split into six units indicated China could be easing its regulatory scrutiny for the internet sector.
Emerging Markets
Asia was the top performing region, followed by Latin America and Europe, the Middle East and Africa (EMEA). Markets in EMEA initially were hit by troubles in the banking sector, but news of Credit Suisse’s merger with UBS helped settle investor nerves.
However, Argentina dragged down the performance of Latin America. Equities fell, following uncertainty surrounding October’s general elections and the current drought.
Things were more positive in Mexico as macroeconomic indicators for retail sales, service activity and domestic demand improved. Stocks in Peru were buoyed by hopes the country’s political situation was improving.
Fixed Income
It was a turbulent month for bond markets with the collapse of Silicon Valley Bank (SVB) and UBS’s takeover of Credit Suisse.
By the end of the month though, calm had returned to the financial markets as investors seemed less concerned about aggressive interest rate hikes from central banks.
As a result, government bonds rallied, which had a knock on effect for investment grade credit. US investment grade bonds bounced back strongly in March following their underperformance in February.
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