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International equities recovered

March 2021

Share markets, exchange rates, commodities, international developments, domestic economic indicators

  • International equities recovered towards the end of March following a sell-off in February and March.

  • Equity and bond selling were caused by expectations that inflation will earlier than expected rise beyond the Fed’s 2% inflation target – and as such, interest rates will be increased sooner.

  • However, Federal Chairman Jerome Powell said the Fed will not be pulled into pre-emptive interest rate tightening.

  • Equity selling was early on aggravated by President Biden’s proposal for personal income taxes to be increased on households with annual earnings of more than $400 000. However, Biden’s $1.9 trillion fiscal stimulus package, $2 trillion infrastructure investment proposal, as well as upward revisions to world economic growth estimates due to increasing vaccinations assisted equities towards the end of the first quarter of 2021.

  • In the UK the magnitude of the disruption stemming from Brexit is becoming more evident. In January, British exports to the EU fell 40.7%, while exports to the rest of the world increased modestly. But, fiscal and monetary support are enabling a strong consumer-led recovery.

  • China’s new economic plan was adjusted to evade conflicting targets. Ultra-high economic growth rates (8% and more) gave way to growth above 6% so that the country can focus on financial stability.

  • These factors contributed to the MSCI Developed Markets Equities Index gaining 3.1% for the month and 4.5% for the quarter. But the MSCI Emerging Markets Index lost 1.7%, also due to interest rate increases in Brazil, Russia and Turkey.

  • In the meantime, the increase in commodity prices such as oil receded due to new restrictions on COVID-19 plagued countries including France and Germany in Europe, and India and Brazil. A new wave in the US is also emerging. Oil’s gains due to a freight ship blocking the Suez-canal also dissipated after the ship was freed from a sand-bank. Brent oil was 2.4% lower in March compared to February.

  • The ALBI lost 3% in March, while the price of gold also decreased on the back of rising bond yields.

  • The South African economy was hit by another bout of load shedding which continued for a week in March. The South African Reserve Bank (SARB) estimates economic growth of 3,8% in 2021, but that gross domestic product will contract by 0,2% in the first quarter.

  • The SARB’s Monetary Policy Committee became more hawkish as they unanimously decided to keep the repo rate unchanged (at the January-meeting two members still voted for a reduction of 25 basis points). The SARB expects consumer price inflation (CPI) to increase in the near-term due to base effects, an increasing oil price and higher administered prices. CPI is expected to remain stable in 2022 and 2023.

Courtesy: Multivest Economic Division

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