March 2016 || Newsletter
Global equity markets fell for a third month but ended well above the mid-February lows. Market sentiment gradually improved on signs that financial tensions in China were abating and on better price trends for commodities. This was best illustrated by the 29% rebound of oil prices from February 11 onwards, following the severe decline observed since the start of the year. Nevertheless, assets deemed the safest performed the best and included German bunds, whose 10-year yield collapsed to 11bps, as well as gold which appreciated by 11% to reach $1’239 an ounce.
In relative terms, emerging markets performed well on the back of a more stable yuan and a 0.5% cut of China’s required reserve ratio; these elements brought some reassurance to investors about the objectives of the Chinese authorities and also contributed to boost the value of emerging market assets. Risk assets also started to benefit from a less negative outlook on the US economy as a series of data have beaten expectations and shown the resilience of US consumers.
Despite a lesser level of confidence in the capacity of central banks to continue supporting financial assets, investors will now focus on the upcoming meeting of the ECB. On the back of weak inflation data and sluggish growth, a further 10 basis-point cut in the deposit rate has already been priced in, while an extension of its bond-purchase program could also well be announced.
- The high correlation between oil and equities
- The pound is under severe pressure
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