Global equities recorded their worst month in over three years in March (MSCI World -6.3% MoM) as US and Israeli military strikes on Iran rattled investors. Iranian military responded to the strikes by refusing passage for vessels through the world’s most significant seaborne energy transit route, the Strait of Hormuz, driving a 63% MoM spike in the oil price. Emerging markets (EMs), which have been strongly outperforming their developed market (DM) peers recently, were a significant underperformer in March (MSCI EM -13% MoM). Conversely, the tech-heavy Nasdaq 100 Index, which has been out of favour recently as investors worried about the aggressive artificial intelligence (AI) capex spending, was one of the best performers in March (-4.8% MoM), albeit still with a material negative print. The only major bright spot for equity investors was in energy stocks (S&P 500 energy sector +10% MoM).
Spiking energy prices stoked inflation fears, and investors abandoned their expectation for rate cuts from the US Federal Reserve (Fed) for the remainder of the year, driving the US government’s 10-year borrowing rate 0.4% higher to 4.3% p.a. at month-end. The Fed kept rates on hold at its March meeting (as expected), which was held in the wake of an extremely weak US labour market print. Economists had been anticipating 55,000 job adds during February, while the data showed that 92,000 jobs were lost during the month. Despite the labour market weakness, the Fed members focused on lingering inflation concerns, potentially exacerbated by the recent oil price spike. In contrast, the Fed members upgraded their expectations for US economic growth.
The higher US yields (combined with a general flight to safety for investors) resulted in the US dollar rallying against most major currencies (US Dollar Index +2.4% MoM).
Gold, which often attracts investors during bouts of risk aversion, was amongst the worst performing assets in March (-12% MoM), giving back some of the recent spectacular gains which have seen its price more than double over the past couple of years.
