Global sharemarkets were positive over the March quarter. Europe and Japan have suffered from increasing ‘third wave’ COVID-19 infections leading to further lockdowns, while in the US and UK the vaccine rollout has largely been successful in vaccinating millions and infection rates in those countries have been on a steady decline.
The US sharemarket (S&P 500 Index) gained 6.1% in the March quarter. At the beginning of the quarter the sharemarket declined, with the US Federal Reserve warning that the pace of economic recovery had weakened. But as COVID-19 infections continued to trend lower and the vaccine rollout accelerated, fears of a weakening economy were replaced with fears that a rapid recovery would lead to inflation – however, Fed Chairman Jay Powell confirmed that interest rates will remain low for a sustained period.
At its Federal Open Market Committee meeting in March, the Fed left its policy settings unchanged and upgraded its forecasts for economic activity. The passing of the US$1.9 trillion stimulus package in March also renewed confidence in continuing support for the economy and drove the sharemarket higher. Employment, retail sales and industrial production are all set to be supported by what has been one of largest stimulus packages in US history.
Eurozone markets were positive over the quarter, even as increasing infection rates from the more virulent UK strain of COVID-19 spread throughout continental Europe and forced many countries back into lockdown. Economic data across the region showed some positive signs, however, this was offset by a continuing weak labour market and sluggish retail sales.
In the UK, lockdowns were instituted in January and remained in place throughout most of the quarter, with a gradual rollback in March as infection rates and deaths declined. Despite this, there were signs of economic recovery, with consumer confidence and retail sales picking up. The vaccination campaign continued to progress well with more than half the adult population vaccinated with at least the first dose.
The MSCI World Index ex-Australia (hedged into AUD) rose 6.3% over the quarter. Amongst the developed markets, Sweden (18.3%) and the Netherlands (15.7%) outperformed the broader developed markets, whilst New Zealand (-8.0%) and Portugal (-0.3%) were the weakest performing countries in local currency terms.
In Australia, the Job Keeper program finished at the end of March – Treasury estimates were that up to 150,000 jobs could be lost as a result. However, business conditions improved over the quarter with a rise in employment levels and increasing profitability.
The Australian sharemarket recorded an increase of 4.2% over the quarter. Information Technology (-10.3%) and Healthcare (-2.1%) were the weakest sectors, while Financials (12.1%) and Telecommunication Services (9.0%) led the market. Mid-caps (0.7%) and small-caps (2.1%) underperformed large-cap stocks (6.3%) over the quarter.
The Australian Dollar was mixed over the quarter, appreciating against the Euro (2.8%) and Japanese Yen (5.6%) but depreciating against the US Dollar (-1.3%) and the British Pound (-2.2%).
Bond markets were negative over the quarter given the sharp rise in yields. The US and Australian 10-year bond yields ended the quarter at 1.74% and 1.79% respectively.
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