Global stock markets experienced significant volatility in March. The US indices were particularly affected, with the S&P 500 declining by -5.7% in USD terms, and the technology-focused NASDAQ index decreasing by -7.7%.
Despite a generally lower risk appetite across the market, the NZD appreciated against the USD, which meant that the S&P 500 actually fell -7.1% in NZD terms. Bond prices remained largely stable with interest rates staying relatively flat.
Markets were cautious due to uncertainty surrounding US tariffs, and the potential for reciprocal tariffs to escalate into an all-out global trade war. US economic data indicated some signs of deceleration, with sentiment weakening, CPI inflation measuring slightly below expectations, and unemployment rising slightly from its low levels. The uncertainty over tariffs also led to a decline in consumer confidence.
The US Federal Reserve kept interest rates unchanged, as anticipated. However, their projections implied that there could be two additional rate cuts this year, which exceeded market expectations. The Federal Reserve acknowledged the near-term inflationary risks posed by tariffs, while simultaneously lowering the growth forecast. Consequently, interest rate markets concluded the month with an expectation of three additional 0.25% rate cuts from the Federal Reserve within the next year.
Australian economic data also showed signs of deterioration. Employment figures fell significantly, with approximately 53,000 jobs lost compared to the expected increase of 30,000. Additionally, CPI inflation was marginally lower than anticipated, decreasing from 2.5% to 2.4%. This data supports the Reserve Bank of Australia's decision to reduce interest rates back in February. Interest rate markets anticipate that the RBA will maintain current rates in April but reduce them by another 0.25% in May.
On the other hand, New Zealand's economic indicators are beginning to show small signs of improvement. Business surveys are on the rise, and GDP growth for the fourth quarter exceeded expectations at 0.7%, following two consecutive quarters of contraction last year. However, consumer confidence has declined due to global uncertainties and the rising cost of living. The interest rate markets anticipate that the Reserve Bank of New Zealand will reduce rates by 0.25% at their April meeting.
NZ term interest rates remained unchanged as they have already factored in much of the RBNZ's projected monetary easing.
The NZD increased by 1.43% against the USD over the month. Despite the lower risk appetite in equity markets, the rise in the NZD was driven by domestic US factors which caused weakness in the USD.
Global markets continue to exhibit volatility. Investors will be looking at geopolitical developments, tariff negotiations, and economic data from the United States to figure out their next moves.