As per usual, we like to provide you with a quick snapshot of the key events and shifts that have been shaping local and global markets.
On the equities front…
Developed markets rose in the first quarter by 2.5% in US dollars, predominantly driven by European stock markets, as investors paid for shares that would benefit from Euro weakness.
Emerging markets also moved higher by 2.3% in US dollars.
Locally, the FTSE/JSE All Share Index rose 5.8% for the quarter. Financials returned 11.2%; Industrials returned 5.6% and Resources declined 0.2% for the quarter.
What were currencies doing?
The European Central Bank (ECB) surprised markets in January with a more aggressive quantitative easing (QE) programme than anticipated. This contributed to further Euro weakness and US dollar strength.
The Rand weakened by -5.6% against the US dollar, which was more than most emerging market currencies. This was due to weak domestic growth, energy constraints and a persistently negative trade balance.
The interest rate forecast
The U.S. Federal Reserve’s language suggested that it was one step closer to raising rates, but revised down its trajectory of rates thereafter.
The commencement of the European Central Bank (ECB’s) bond buying programme (quantitative easing) has kept European interest rates exceptionally low.
Locally, the SARB’s Monetary Policy Committee (MPC) left rates unchanged in the first quarter at 5.75%. However, the probability of interest rate hikes in the quarters ahead has increased. Higher electricity tariffs, tax changes, a weaker rand and drought-related pressure on food prices mean inflation expectations are again tilting to the upside.
Lastly, economic activity improved in most developed markets. However, emerging market growth rates have slowed, most notably in the commodity and energy exporting countries such as Brazil and Russia.
Sources: Coronation Fund Managers, Foord Asset Management