Optimism about the pace of the global economic recovery gathered momentum in March as economists continued to upgrade forecasts for 2021 global economic growth. The vaccine rollout also gathered pace in major developed markets (DMs) with around 350mn COVID-19 vaccinations being administered in March, bringing the total number of doses administered worldwide to 600mn. The US and the UK were leading the way among major DMs, with 29% and 46%, respectively, of their populations having received at least one vaccination by the end of 1Q21.
Equity markets benefited from improving economic optimism, with DM equities (MSCI World +3.3% MoM) led higher by those companies most likely to benefit from normalising economic activity. Financial stocks were amongst the best performing in March (S&P 500 Financials Index +5.8% MoM) as the US Federal Reserve (Fed) announced that well-capitalised banks, which were able to pass their stress tests, would no longer be restricted from paying dividends or buying back shares.
Emerging markets (EMs) typically benefit from improving economic optimism but lagged in March (MSCI EM -1.5% MoM), held back by Chinese stocks. The Nasdaq Golden Dragon Index of US-listed Chinese companies fell 15% MoM, caught between the prospect of regulatory intervention from both China and the US. US regulators again raised the prospect of delisting US-listed Chinese companies which fail to meet increased transparency requirements, while the Chinese government continued to ratchet up anti-trust scrutiny on the largest Chinese corporates.
US 10-year government bond yields matched their February sell-off, rising another 0.35% in March to end the month at 1.75%. US Fed chair, Jay Powell, used multiple speaking opportunities in March to shrug off concerns about the pace of the increase in longer-term US interest rates. Powell suggested that a disorderly sell-off in US rates would be concerning for the Fed but made it clear that he did not consider recent moves as disorderly, effectively endorsing higher long-term rates, which he said correctly reflect the improving economic outlook, while he reiterated that the path to full employment was still some way off. European Central Bank (ECB) president, Christine Lagarde, used the opportunity of the March ECB meeting to confirm that, unlike the Fed, the ECB was not ready for higher long-term rates, helping cement the divergence between US and EU rates, which contributed to a strong month for the US dollar.
The US dollar rallied against most major currencies in March, including the euro (-2.9% MoM), Japanese yen (-3.8% MoM) and British pound (-1.1% MoM). EM currencies were a mixed bag, with the Turkish lira’s movements the most noteworthy (-10% MoM relative to the US dollar) as Turkish president, Recep Erdogan dismissed central bank chief, Naci Agbal who had been in the job for only 4 months. This is the third time in 21 months that Erdogan has dismissed the country’s central bank chief.