Our Multi-Asset Solutions team produce a weekly market recap which aims to summarise the previous week’s major events and developments that may impact markets. They try to include points that may aid you in your decision making or conversations with clients. This is supplemented by a market data sheet, offering a summary of financial market performance. Last week’s summary is below. 




Economic and Political Backdrop


The US


Stock prices fluctuated over the week in apparent response to the evolving situation in the war in Ukraine. The week started off on a strong note, attributed to reports that Russia was prepared to allow Ukraine to join the EU in return for a pledge to stay out of NATO as well as progress in ceasefire talks. The S&P 500’s four-day winning streak was broken on Wednesday after a Russian official said talks with Ukraine yielded no breakthroughs and Russia was regrouping forces in a push to complete the takeover of the eastern Donbas region. The mood soured further on Thursday, as Ukrainian President Volodymyr Zelenskyy said Ukrainian forces were preparing for new Russian attacks. After rising briefly on the renewed tensions, oil prices resumed their decline following the Biden administration’s announcement of an extended release from the nation’s Strategic Petroleum Reserve to combat inflationary pressures.


The week brought several closely watched economic reports, most of which came in roughly in line with consensus expectations. The most prominent may have been the March nonfarm payrolls report, which showed that job gains fell somewhat below expectations at 431,000 versus 490,000, but the unemployment rate fell a bit more than expected, to 3.6%. Monthly growth in average hourly earnings met expectations, at 0.4%, as did monthly consumer income gains, at 0.5%. Personal spending, reported Thursday, only rose 0.2% - less than expected and perhaps reflecting a growing unwillingness to pay higher prices. February job openings remained little changed and near record highs.





President Vladimir Putin signed a decree stipulating that foreign buyers must pay for Russian natural gas in rubles from 1 April onward, raising concerns about possible supply disruptions in Europe and the potential economic implications. The G-7 countries unanimously rejected the directive. Germany said it would continue paying for Russian energy in euros and set in motion an emergency plan for rationing natural gas in case deliveries cease or are curtailed.


Preliminary estimates showed that the eurozone’s annual inflation rate soared to a record 7.5% in March, compared with 5.9% in February. The increase was driven mainly by the upsurge in energy prices. The unemployment rate dropped to a record low of 6.8% in February, as the economy continued to recover from the lifting of coronavirus lockdowns.


European Central Bank (ECB) President Christine Lagarde, Vice President Luis de Guindos and Chief Economist Philip Lane expressed caution about the macroeconomic outlook as fighting continued in Ukraine. Lagarde reiterated at a conference in Cyprus that the eurozone faced slower growth and higher inflation in the short term, but she warned that "the longer the war lasts, the higher the economic costs will be and the greater the likelihood we end up in more adverse scenarios." Under an “adverse” scenario (including stricter sanctions on Russia, persistent energy supply disruption and increased geopolitical uncertainty), the ECB projects economic growth of 2.5% in 2022, compared with its base case of 3.7%.


The  UK

The UK economy grew more quickly than previously thought in the final quarter of 2021, with the rate of expansion revised higher to 1.3% from the previous estimate of 1%. However, the increase was mainly due to coronavirus-related activity in the health sector. Meanwhile, a survey from the Institute of Directors showed business sentiment slumped in March because of deteriorating economic conditions.



As widely expected, Japan’s government announced it would begin work on additional measures to boost the economy. It is seeking to cushion the impact of rising fuel and commodity prices on households and firms, amplified by a sliding yen, and help the economy recover from the coronavirus pandemic. Prime Minister Fumio Kishida said the priority was to deliver the spending plan as soon as possible – by late April, according to the Kyodo news agency. Reserve funds in the fiscal 2022 budget, including those set aside for the government’s coronavirus response, will be used to finance the package.


As part of its yield curve control framework, the Bank of Japan (BoJ) has targeted long-term bond yields near 0%, with a view to reaching its 2% inflation target. It was forced to buy progressively more Japanese government bonds (JGBs) during the week as the global bond sell-off exerted upward pressure on yields – the 10-year JGB yield reached the 0.25% ceiling the central bank tries to impose. The BoJ initially announced two fixed rate purchase operations (to buy unlimited 10-year JGBs at 0.25%), and later announced, for the first time, multiple purchase operations on consecutive days, which included buying securities across the yield curve. It also unveiled plans for larger outright JGB purchases in the second quarter.


The massive intervention, which reinforced the BoJ’s dovish policy stance, was enough to stabilise the JGB yield curve. Amid concerns that the central bank’s bond buying could be weakening the Japanese yen, BoJ Governor Haruhiko Kuroda asserted that the central bank’s market operations do not directly affect foreign exchange rates.



China’s purchasing managers’ indexes (PMIs) for manufacturing and services lagged forecasts and fell into contraction in March as outbreaks of the omicron variant of the coronavirus across the country led to lockdowns and disrupted industrial production. Many economists have reduced their economic growth forecasts for China due to the virus’s resurgence and the government’s zero-tolerance approach to outbreaks. Shanghai saw a renewed COVID-19 outbreak with more than 32,000 cases reported in the past month, the biggest spread of infection in China since it first appeared in Wuhan.


The People’s Bank of China published details of its first-quarter Monetary Policy Committee meeting, noting increasing uncertainties domestically and abroad. The central bank said conditions warranted strengthening of policy implementation, remarks that some analysts interpreted as a sign of further credit easing while keeping monetary conditions stable.



Retail sales surprised on the upside, doubling expectations with 1.8% month on month growth versus 0.9% expected. The report was solid, fuelled by the recovery post the Omicron wave, high savings rate and low unemployment rate. Household consumption is likely to remain a strong support to the domestic economy. Considering the upcoming elections and the sweeteners announced by the government to voters in the budget last week, this trend is not likely to end any time soon. Housing activity is hard to read, although it showed signs of peaking previously. Indeed, housing price growth slowed further, but remained positive at 0.4% month on month. Building approvals rebounded strongly after the Omicron disruptions in January.






Equity  Markets

Last week, MSCI All Country World Index (MSCI ACWI) rose 0.5% (2.2% in March, -5.3% in the first quarter, -5.1% YTD).


In the US, the S&P 500 returned 0.1% (3.7% in March, -4.6% in the first quarter, -4.3% YTD), closing out its best month since December but its worst quarter since early 2020. Cyclically sensitive stocks underperformed as investors girded for a slowdown in growth, with the financial services and industrials sectors in the S&P 500 among the losers. Higher interest rate expectations took a toll on the information technology sector, while the typically defensive consumer staples and utilities sectors outperformed. Small capitalisation stocks were ahead of large ones, while growth ended the week ahead of value. Russell 1000 Growth returned 0.8% (3.9% in March, -8.7% YTD), Russell 1000 Value was down -0.4% (2.8% in March, -0.3% YTD), while Russell 2000 gained 0.7% (1.2% in March, -6.6% YTD).


In Europe, the Euro Stoxx 50 gained 1.3% (-0.4% in March, -8.9% in the first quarter, -8.5% YTD) in a choppy week of trading, overcoming concerns about the macroeconomic outlook amid strong inflation and the ongoing Russian invasion of Ukraine. Germany’s DAX climbed 1.0% (-9.1% YTD), France’s CAC 40 tacked on 2.0% (-6.3% YTD) and Italy’s FTSE MIB added 2.5% (-7.6% YTD). Switzerland’s SMI advanced 0.7% (-4.1% YTD). The euro was little changed against the US dollar, ending the week at 1.10 USD per EUR.


In the UK, the FTSE 100 returned 0.8% (1.4% in March, 2.9% in the first quarter, 3.2% YTD) and the FTSE 250 firmed 1.3% (0.6% in March, -9.5% in the first quarter, -9.2% YTD). The British pound was weaker against the US dollar, ending the week at 1.31 USD per GBP, down from 1.32.


Japanese stock markets fell over the week. The Nikkei 225 was down -1.0% (5.7% in March, -2.6% in the first quarter, -3.1% YTD), the broader TOPIX lost -0.9% (4.2% in March, -1.3% in the first quarter, -1.4% YTD) and the TOPIX Small Index gave up -0.3% (1.1% in March, -3.2% in the first quarter, -3.1% YTD). Growing pessimism about the peace talks between Russia and Ukraine and worries about global inflation and the impact of interest rate increases weighed on risk appetite. Sentiment among big Japanese manufacturers fell in the first quarter for the first time since the outbreak of the coronavirus pandemic, the BoJ’s Tankan survey of business confidence showed. The yield on the 10-year JGB fell to 0.21%, from 0.24% the previous week, with bond purchase operations by the BoJ exerting downward pressure on yields. The yen weakened to its lowest level in over six years of JPY 122.5 against the US dollar, from 122.1 the prior week, on expectations of divergent monetary policy between the BoJ and other major central banks.


In Australia, the S&P ASX 200 returned 1.2% (7.0% in March, 2.8% in the first quarter, 2.7% YTD), extending its winning streak to a third positive weekly return. Materials continued to benefit from the ongoing diversification of commodity suppliers and the relative isolated position of Australia in the Russia/Ukraine crisis. Sectors such as technology, healthcare and consumer staples also had positive week thanks to the strong consumer data. The Australian dollar took a pause, ending the week flat. On the other hand, the surge in government bond yields showed no signs of exhaustion with the 2-year yield rising by 25 basis points last week, leading to a flattening of the curve. The Australian curve is still far from inversion, with a healthy 1% spread between the 2-year and 10-year yields.






Emerging and Other Markets


MSCI Emerging Markets Index returned 1.9% last week (-2.3% in March, -7.0% in the first quarter, -6.7% YTD), with a positive contribution to performance from the stock markets of China, South Korea, India and Brazil and a negative contribution from that of Taiwan.


Chinese markets gained for the week, as investors anticipated that Beijing would step in to support the country’s economy and markets. For the week, the CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, rose 2.4% (-7.8% in March, -14.5% in the first quarter, -13.4% YTD) and the broad, capitalisation-weighted Shanghai Composite Index climbed 2.2% (-6.1% in March, -10.6% in the first quarter, -9.8% YTD).


Delisting concerns continued to pressure technology stocks, as investors worried about the risk of dual-listed Chinese firms getting kicked off US exchanges. On Wednesday, the US Securities and Exchange Commission added five US-listed Chinese internet companies to its growing list of companies facing possible delisting due to China’s refusal to allow US regulators to inspect their audits. Baidu, China’s leading search engine, and its video-streaming unit iQiyi were among those added to the list of companies targeted by the Holding Foreign Companies Accountable Act (HFCAA). The newly identified companies could be subject to delisting from US exchanges if they fail to comply with the HFCAA’s audit requirements for three straight years.


The yield on the 10-year Chinese government bond ended the week unchanged at 2.825%, and the yuan was steady at around 6.3 against the US dollar.


Elsewhere, Russia’s war against Ukraine continued, though there were hopes for a diplomatic end to the conflict based on what one Russian representative deemed “constructive” ceasefire negotiations on Tuesday between the warring parties in Istanbul, Turkey. According to EXM Capital sovereign analyst Peter Botoucharov and credit analyst Razan Mahmoud, the negotiations appear to have brought some very preliminary mutual understanding on a few issues, including discussions on Ukraine’s adoption of a permanent neutral and non-nuclear status, as well as agreement on Ukraine’s application for European Union membership. However, Botoucharov and Mahmoud note that there are several key issues – including security guarantees and Ukraine’s territorial integrity – where the parties expressed diverging and, in some cases, opposing views.


All in all, they believe that both sides are still far apart on a mutually acceptable ceasefire and peace agreement. They are skeptical about Russia’s intention to de-escalate the conflict. Also, they believe that Ukrainian territorial concessions to Russia could endanger the political standing of the current Ukrainian government and parliament. In addition, they believe that a proposed neutral status for Ukraine could have difficulty being accepted via referendum.


In Chile, the S&P IPSA Index returned 0.3% (15.6% YTD). On Tuesday, Chilean central bank officials, in an unanimous decision, decided to raise the key interest rate by 150 basis points, from 5.50% to 7.00%. This rate increase, while sizable, was at the lower end of a range of expectations. According to EXM Capital emerging markets sovereign analyst Aaron Nasser, the statement issued after the policy meeting was generally more balanced than recent post-meeting statements, as policymakers discussed elevated inflation as well as a weaker growth outlook. They also noted that future increases in the policy rate are likely to be smaller.


Nasser agrees that growth is likely to slow this year – partially due to base effects given the large expansion in 2021, but also because overall economic activity should decline on the back of much tighter monetary and fiscal policy, as well as stalling private investment due to lingering political and regulatory uncertainty. However, he believes that these growth-slowing factors could be offset somewhat by still elevated household liquidity due to government transfer programs and previous pandemic-related emergency withdrawals from the Chilean pension system.



Fixed Income Markets

Last week, Bloomberg Global Aggregate Index (hedged to USD) returned 0.3% (-2.2% in March, -5.0% in the first quarter, -5.1% YTD), Bloomberg Global High Yield Index (hedged to USD) 1.0% (-0.6% in March, -5.2% in first quarter, -5.3% YTD) and Bloomberg Emerging Markets Hard Currency Index 1.4% (-2.3% in March, -9.2% in the first quarter, -9.4% YTD).


The US 10-year Treasury yield ended the week at 2.39%, decreasing nine basis points from 2.48% (87 basis points higher YTD). While prices of US Treasuries rose for the week, the Bloomberg US Aggregate Bond Index rounded out its worst quarter since late 1980, and its third-worst quarter since the index’s inception. March was the worst monthly performance for the index since July 2003. Portions of the Treasury yield curve inverted over the week, but the correlation between an inversion and a looming recession may not necessarily hold, as investors appeared to be favouring longer-dated Treasuries due to signals that the Federal Reserve may hike official short-term rates by 50 basis points (0.50%) in May.


Core eurozone bond yields fluctuated over the week but ended the period roughly level. Higher-than-expected inflation data boosted expectations for further interest rate increases and drove yields higher. The move reversed as optimism over Russian-Ukrainian peace talks faded and ECB chief economist Philip Lane said the ECB should be ready to revise policy should macroeconomic conditions deteriorate significantly. Over the week, the German 10-year bund yield decreased three basis points to 0.55%, down from 0.58% (up 74 basis points YTD). Peripheral eurozone government bond yields broadly tracked core markets.


UK gilt yields fell in line with US Treasuries, which declined on geopolitical tensions and fears of a recession. The UK 10-year gilt yield ended the week eight basis points lower, down from 1.69% to 1.61% (64 basis points higher YTD).


The US investment-grade corporate bond market traded higher on Tuesday, as sentiment was bolstered by encouraging headlines regarding the war in Ukraine. More volatile credits outpaced the broader market, and credit spreads moved wider. Technical conditions were mixed as healthy trading volumes were countered by higher-than-expected levels of new issuance. The high yield market saw better-than-average trade volumes as investors appeared to be encouraged by the potential positive headlines out of Ukraine and looked for deals in the secondary market. New issuance remained muted.


Some improvement in the economic backdrop seemed to stoke demand for collateralised loan obligations in the leveraged loan market. Higher interest rates also contributed to greater retail flows into the asset class (unlike traditional bonds, leveraged loans pay floating coupons that rise alongside interest rates). The demand for names trading at a discount was healthy, as the favourable technical conditions created by positive flows and the lull in primary issuance seemed to mostly outweigh fundamental uncertainties.