International equities recovered
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