Market Pulse - Quarter 1 2019

Following sharp falls in the fourth quarter of 2018, global equity markets rebounded strongly in the first quarter of 2019, recovering the losses experienced at the end of last year. Performance was driven by the dovish rhetoric from the US Federal Reserve (Fed) and other major central banks, growing optimism around a highly anticipated US-China trade deal and better-than-feared corporate earnings. Additionally, Eurozone sovereign bonds benefited from a combination of the more dovish policy stance of the European Central Bank (ECB), weak economic data across the region, persistent low inflation readings and political uncertainty related to Brexit. 

Key quarterly themes

Equities recover and bonds continue to perform well

The Fed ceases its monetary tightening cycle and indicates that it will discontinue its balance-sheet reduction in September

Growing optimism around a US-China trade deal helps markets

Markets snapshot

The MSCI AC World equity benchmark rose 12.4% (14.4% in euro terms).

US stocks rose 13.9% (16.0% in euro terms), following the policy reversal by the Fed and easing recessionary fears.

Europe ex-UK equities rose 12.6% (12.7% in euro terms), similarly benefiting from the more dovish policy stance adopted by the ECB and growing hopes of a rebound in Chinese growth.

Japanese markets lagged, rising 7.8% (8.8% in euro terms) as economic data disappointed, while there were lingering concerns over the potential impact of the planned VAT increase scheduled for October.

The UK also underperformed, rising 9.4% (13.9% in euro terms) due to the ongoing Brexit-related uncertainty.

The ICE BofA Merrill Lynch Eurozone > 5-year sovereign bond benchmark rose 3.8% during the quarter.

The German 10-year yield fell back into negative territory, ending the quarter at -0.07%, as the ECB pushed out guidance in relation to the expected timing of the next interest-rate rise.

Italian 10-year spreads against Germany ended the period slightly higher at 256 basis points (bps). Spanish 10-year spreads were effectively flat at 117bps, while Portuguese spreads narrowed to 132bps at quarter-end.

The euro generally drifted lower throughout the quarter, ending the period at 1.1218 against the US dollar.

Commodities rose 15.0% (17.0% in euro terms). West Texas Intermediate (WTI) oil rose 32.4%, as OPEC began to implement new production cuts announced at the end of 2018, tensions in Venezuela restricted oil supplies and production disruptions were evident across other regions.

 

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