2H March Global Market Recap

 

16^th March 2022 – 31^st March 2022

FULL REPORT ACCESS LINK: First Plus Market Update 2H March 2022

Macro:

Retail sales in the United States fell in February after soaring the previous month, indicating that consumers cut their spending in several categories as inflation reduced purchasing power. Retail sales grew 0.3% last month, down from 4.9% the previous month and 0.1% lower than the forecast. The February increase was led by a 5.3% increase in fuel spending. Total durable goods orders climbed by 16.7% year on year, hitting $271.5 billion, close to a record high. On a month over month basis, durable goods sales fell 2.2% in February, falling short of the forecast of a 0.5% decline and marked the first dip in five months.

 

Chinese manufacturing and service activity simultaneously declined in March for the first time since the Covid-19 epidemic in 2020, according to the National Bureau of Statistics. The official manufacturing PMI dropped to 49.5 in March from 50.2 in February, while the non-manufacturing PMI fell to 48.4 from 51.6. Profit of industrial enterprises above designated size in January-February 2022 increased by 5.0% year on year, 0.8% faster than the growth rate in December 2021. Industrial profits increased as a result of the recovery of industrial value added and the decrease of taxes and levies.

 

Stocks:

The U.S. stock market continued to gain even on the backdrop of an accelerated inflation, geopolitical risks as well as a tightening Fed policy. The S&P 500 rose 3.6% for the month, regaining grounds after stocks plunged earlier this year. The Dow Jones Industrial Average was up 2.3% and the Nasdaq Composite grew 3.4%. The rebound came as the economy continued to show signs of resilience in the face of new challenges, and the Federal Reserve's long-awaited interest rate plan met investors' expectations. Bloomberg reported on April 1 that Chinese authorities are preparing to grant U.S. regulators full access to audit reports for the majority of more than 200 companies listed in New York, as early as mid-2022 but the Chinese government is prepared to accept the delisting of state-owned enterprises and private companies that hold sensitive data, according to those familiar with the matter.

 

After two weeks of high volatility in the first half of March, A-share market sentiment softened in the second half of the month, with average daily turnover dropping to around RMB950 billion. In March, SHCOMP dropped 6.1%, CSI 300 fell 7.8%, and ChiNext Index fell 9.9%. The State Council has stressed that contractionary policies or policies that are not conducive to market expectations should be avoided. The resurrection of COVID 19 has not yet reached the turning point in mainland China and many industries are facing significant downward pressure on earnings forecasts for the first quarter of 2022. It will take some time before growth stabilization measures take effect.

 

Rates:

The 10-year U.S. treasury yield increased by 51.30bps in the month as the Federal Reserve raise interest rates by 25bps, meeting the market’s expectations of the hike. Fed Chair Jerome Powell said the central bank would move "expeditiously" to move interest rates up after March’s hike and left the door wide open to a larger jump in borrowing costs at the May 3-4 meeting, a possible half-percentage-point interest rate hike. The last time the Fed raised rates by a half-point was May 2000, right as the dotcom and tech bubble was peaking. China kept its benchmark interest rate for corporate and household lending unchanged with the one-year loan prime rate (LPR) held at 3.70% while the five-year LPR remained at 4.60%. The market now widely expects policymakers to resume monetary easing soon to revive an economy hit by a domestic COVID-19 resurgence, weaker credit growth and a faltering property sector, while increasing global risks from the Ukraine conflict also add pressure.

 

Credit:

The U.S. two-year yield briefly exceeded the 10-year for the first time since 2019, inverting yet another segment of the Treasury curve and reinforcing the view that Federal Reserve rate increases may cause a recession. For decades, the bond market was mostly a one-way street, with prices climbing as borrowing rates went lower, even sending yields negative in some places. But now the opposite is happening, bond returns are falling the most on record as yields surge. The European credit market is reviving as companies can sell bonds again with higher yields tempting investors. The People’s Bank of China reaffirmed it will step up the magnitude of monetary policy and make it more forward-looking, targeted and autonomous. International auditors are resigning from China’s heavily indebted property developers as a wave of delayed financial results has increased uncertainty over the full scale of the sector’s worst-ever crisis and raised the threat of hidden debts.

 

FX:

The Dollar Index rose by 1.7% in the month and hit its highest level since May 2020 with the helped by robust U.S. job growth numbers for March that firmed market expectations that the Federal Reserve will increase the pace of interest rate hikes in an effort to blunt rising inflation. The proportion of claims in Chinese yuan climbed to a new high in total foreign exchange reserves in the last quarter of 2021, according to the latest IMF data. The JPY fell by 5.8% and hits a seven year low as the Bank of Japan (BOJ) continued to ease monetary policy aggressively, diverging further from the Federal Reserve’s increasingly hawkish stance. The AUD rose by 3% as it rides on the back of the rise in commodity prices.

 

Commodities:

Brent crude and WTI oil prices rose by 6.9% and 4.8% respectively as Russia signaled it would want rubles not only for gas but also for oil, metals, and grains. The 31-member International Energy Agency, representing industrialized nations but not Russia, presided over the fourth coordinated oil release in its history on March 1 of over 60 million barrels of crude. The U.S. is also considering yet another massive release, of up to 180 million barrels from the Strategic Petroleum Reserve over months, as reported by Reuters. U.S. natural gas prices rose by 29% and have risen 60.3% so far in 2022. The last time there was such a sharp run-up to start a year was in 2008, when energy prices surged ahead of the financial crisis.