March Market Update 2023

March was a month of two halves for global markets. The start of the month was driven by defensive sentiment after the failure of Silicon Valley Bank and Signature Bank. This pushed equities and interest rates lower on contagion fears. However, the quick response from regulators calmed nerves and improved sentiment. The S&P500 ended the month up +3.5%, the tech heavy NASDAQ up +9.5% and US 10-yr interest rates -45bp lower.

Expectations of monetary policy easing from late 2023 increased as investors started to see signs that the US Federal Reserve’s tightening of monetary conditions is beginning to cause a slowdown and pockets of economic stress. In the wake of the banking issues and tighter credit conditions, expectations for the Fed moved from a +50bp increase in interest rates to +25bp, which they delivered as expected. Although officials reiterated that they do not expect to be cutting rates this year, the market took the general outlook as dovish, and that inflation has likely peaked.

UK data was stronger than expected, with inflation remaining above 10%, which may challenge the Bank of England’s (BoE) view that they are near the end of the tightening cycle. However, they continue to expect inflation to ease over the coming months. The market expects the BoE to raise rates by another +25bp at their May meeting.

Australian inflation and growth data both surprised on the weaker side, with inflation coming in lower than expected for both the January and February readings. The Reserve Bank of Australia (RBA) delivered a +25bp hike in interest rates, as expected. The RBA noted further tightening will be needed, but it used a softer tone than in February, also stating inflation had likely peaked and that future data will be key to the path of interest rates.

In New Zealand, economic data continued to moderate, with 4Q GDP slowing more than expected at -0.6%, a long way from the Reserve Bank of New Zealand’s (RBNZ) expectation of +0.7%. Housing data also remained on its downward trajectory. This data helped push expectations for the April RBNZ meeting toward a +25bp rather than +50bp hike, lowering interest rates. 2-year NZ interest rates ended the month -39bp lower, and 5-year rates were -47bp lower. Despite the initial risk off sentiment, the repricing of US interest rate expectations pushed the USD lower, helping NZD appreciate +1.18% over the month.

Markets continue to be data driven, with softer global data giving investors hope that the aggressive central bank tightening has worked and is coming to an end – although whether or not this comes at the expense of a significantly weaker consumer and further weakness in corporate earnings is yet to be seen.