1H March Global Market Recap

 

1^st March 2022 – 15^th March 2022

FULL REPORT ACCESS LINK: First Plus Market Update 1H March 2022

Macro:

The U.S. headline CPI index rose by 7.9% over the same period last year, the largest increase in 40 years and in line with market expectations. Core CPI index saw a monthly gain of 0.5%, slightly less than that of January. The Federal Reserve raised interest rate by 25bps for the first time in 2022 and suggested that the widely watched balance sheet reduction will begin "at a coming meeting." Although a 25bps increase appears to be dovish, the longer-term dot plot appears to be more hawkish than previously assumed. 12 out of the 18 Fed officials predicted at least seven total rate hikes in 2022. The median policymaker expects the rate to be 2.8% at the end of 2023, above the neutral rate of 2.4%.

 

China’s PPI index rose 8.8% over last year, the slowest growth in 8 months but 0.1% higher than forecasts. China’s CPI index increased by 0.9% year over year, in line with expectations. China set its GDP growth target at around 5.5% in 2022, or the upper end of market forecasts. The target came as the lowest annual growth target since 1991. The People’s Bank of China announced for the first time that it will transfer over Rmb1trn in profit to the central government on tax refunds for businesses and support local government budgets, a positive sign that more cooperation between fiscal and monetary authorities to support the economic growth.

 

Stocks:

Global markets have been volatile in the first half of March as investors assess geopolitical developments and await the Fed’s interest rate decision. Fears of delisting of U.S. listed Chinese firms have recently emerged after the Securities and Exchange Commission identified five U.S.-listed Chinese companies that failed to comply with the Holding Foreign Companies Accountable Act. The blue-chip Dow Jones Industrial Average dropped 1%, the S&P 500 lost 2.5% and the Nasdaq Composite was down slumped 5.8%.

 

The A-share market remained considerably choppy amid regulatory risks, supply shock and the resurgence of COVID-19. Northbound trade saw Rmb36.3 billion in net outflows, the third baggiest weekly outflow since the start of the Stock Connect programs in 2014. The CSI 300 slumped 12.9%, SHCOMP plunged 11.2% and the ChiNext Index dropped 12.3% in the first half of March. Hong Kong stock market took one of the biggest hits since 2008 as investors worried about the probable delisting of US-listed businesses, an industry crackdown, Covid-19 breakouts, and China's stance on the Ukrainian war. The Hang Seng Index fell 18.9% in the first half of March. The bulk of the gains came on 16 March after China made a strong push to stabilize battered financial markets, promising to ease a regulatory crackdown, support property and technology companies and stimulate the economy.  Looking ahead, we believe that regulation risks may have eased and that in the medium term, China market is relatively resilient given its favorable growth and policy cycles and relatively attractive valuation levels.

 

Rates:

The 10-year U.S. treasury yield increased by 31.9bps in the month as the Federal Reserve raise interest rates by 25bps, meeting the market’s expectations of the hike. The market is worried that stagflation may happen as interest rate rise and economic growth may suffer due to the Russian-Ukraine war with inflation still rising. The Bank of England raised rates to 0.75%, as expected by the market, to tackle rising inflation in the UK. China’s benchmark bond yield rose the most in five months as the central bank refrained from cutting its policy rate and as data showed the world’s second-largest economy had a strong start to the year.

 

Credit:

Global bonds slide nearly 10% from peak in a worst drop in the decade according to Bloomberg. The sell-off in fixed income mainly reflects inflationary pressures, dampening the appeal of low-yielding debt whose returns are being evaporated as consumer prices surge. High-grade and junk bond funds have suffered nine straight weeks of sizable outflows, totalling US$12.8 billion and US$2.8 billion respectively, according to Bank of America Corp. Europe’s market for new bonds has suffered the sharpest collapse in first-quarter sales on record as credit markets fall out of favour. S&P Global Ratings cut Russia’s credit score by a single notch to CC, two levels above default, citing the country’s debt is highly vulnerable to non-payment. Fitch downgraded Russian sovereign debt to a “C” rating as well, indicating that a sovereign default is imminent.

 

FX:

The Dollar Index rose by 2.5% in the month and hit its highest level since May 2020 as investors’ anxiety swelled due to Russia’s invasion of Ukraine. Saudi Arabia is in active talks with Beijing to price some of its oil sales to China in Yuan as reported by Dow Jones. The outbreak of the Ukraine war and the swath of sanctions imposed on Russia as a result has brought to the fore questions about alternatives to U.S. currency-based markets, and the Yuan is one in particular focus in light of China’s relationship with Russia. The Euro fell by 2.3% in the month as war in Ukraine stokes fears of inflationary shock. The Euro is down almost 4% since Russia began what it calls a “special military operation” in Ukraine.

 

Commodities:

Brent crude oil prices dropped by 1.1% while WTI rose by 0.8% as oil prices experienced tremendous volatility due to the uncertainty of the Russian-Ukraine war’s impact on global crude oil prices. The International Energy Agency (IEA) said markets could lose three million barrels a day (bpd) of Russian crude and refined products from April, far greater than an expected drop in demand of 1 million bpd triggered by higher fuel prices. Wheat prices rose by 20.7% as the war halts exports from Ukraine and Russia, which combined account for about 30% of the world’s traded wheat. The London Metals Index rose by 6.6% as Nickel prices surge by close to 100% in the month of March and at one point spike close to 250%, driven in large part by a short squeeze centered on Chinese tycoon Xiang Guangda. Commodity prices continues to surge with the CoreCommodity CRB Index gaining 4.6% in the month, with these levels last seen at the end of 2014.