Stimulus measures to support consumption followed later in the month, providing a boost to local stock markets. Over the quarter, Chinese equity markets rallied strongly as markets priced technology advances in the region, with the added boost from perceived government support for the sector. Additionally, a weaker USD provided a sanguine backdrop for emerging market indices and currencies.

With concerns of weaker global growth and OPEC+ members advancing plans to increase supply, oil prices have remained broadly contained, returning 0,1% over the quarter. This, despite an uptick of 2,1% in March on the back of indirect tariffs on buyers of Venezuelan oil and a reemergence of geopolitical tensions in the Middle East. Despite tight supplies, European gas prices declined further in March, as talks of a ceasefire deal between the US and Russia (and Europe) evolved. This brings the decline year to date to 16,9%, providing an additional tailwind for the region.

For another month, US inflation data painted a mixed picture. US headline inflation eased to 2,8% from 3,0% y-o-y in January, while core inflation also slowed to 3,1%. Producer prices printed at 3,2%, below forecasts. Data for the US personal consumption expenditure price index (PCE) remained steady at 2,5%. In contrast, the annual rate for core PCE (the Fed’s preferred measure of inflation) increased to 2,8%, above market expectations. Consumer inflation expectations from survey data showed another increase over the month. Federal Reserve Chair, Jerome Powell noted that longer term inflation expectations, which remain largely anchored, are most important. The deterioration of the short-term data is nonetheless noteworthy, representing a deterioration in the near-term outlook. The US Federal Reserve (US Fed) kept policy rates on hold, in line with market expectations. New economic forecasts outlined lower economic growth and higher inflation over the medium-term, but no change to the expected trajectory for the policy rate. The US 10-year bond yield traded rangebound, ending the month at 4,2%.

Inflation for the Euro area eased to 2,3% y-o-y in February from 2,5% the previous month, below market expectations as services and energy costs eased. The European Central Bank (ECB) cut the policy rates by 25bps, reflecting that disinflation was on track even if risks over the medium-term have increased. UK inflation printed at 2,8% in February from 3,0% the previous month. The Bank of England (BoE) kept interest rates unchanged in March, keeping the policy rate at 4,5%. Chinese inflation printed at -0,7% over the year after a rise of 0,5% the prior month. The deflationary print was greatly impacted by declining food prices, however, core inflation also declined over the year (-0,1%). Producer prices continued to languish in deflationary territory, falling by 2,2% y-o-y in February. With a deflationary backdrop signalling weak demand conditions, policymakers lowered the inflation target to 2,0% from 3,0%.

Despite a challenging start to the year, sovereign bond markets ended the quarter in the green with the Bloomberg Global Aggregate Bond index returning 2,6% over the quarter. Gold gained 19,0% over the quarter, reaching new highs above $3000 an ounce as investors reached for safe havens. The US dollar depreciated 3,2% in March, bringing the decline over the first quarter to 3,9% on a trade weighted basis.
 

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