General | April 6, 2022
Sentiment remained fragile in March as the Russian-Ukrainian war continued to ripple through financial markets as investors considered its impacts on the global economy, inflation and central bank policy. As fixed income markets extended their selloff, global equity markets managed to recover from lows following Russia’s invasion of Ukraine, although questions remain about the sustainability and the sustainability of the equity market recovery given the combination of soaring inflation, the prospect of an aggressive path to monetary policy normalization and ongoing geopolitical tensions.
Global stock markets regained ground in March, with the MSCI All Country World Index rising 1.9%. Although the S&P 500 capped its worst quarterly decline since 2020, the index posted a healthy rebound last month as investors stepped in to buy the dip. Meanwhile, the S&P/TSX posted its biggest monthly gain since October, as soaring commodity prices sparked outperformance in the heavy resources sector. Overseas, Eurozone equities performed poorly due to the economic risks facing the region due to the war in Ukraine. Finally, emerging markets were trampled on, with Chinese stocks seeing notable weakness amid concerns about the economic impacts of COVID-19 lockdowns at a time when domestic demand was already falling.
Fixed income markets again generated negative results amid heightened inflationary pressures globally. Global bond yields rose in response to the hawkish pivot from central banks, with policymakers prioritizing price stability even in the wake of lingering geopolitical angst. As expected, the Federal Reserve raised rates by 25 basis points in March. However, officials delivered a hawkish surprise and confirmed that policy would be tightened aggressively to contain persistently high inflation. Yield curves flattened, with short-term yields rising more than their longer-term counterparts, as traders increased their bets for faster rate hikes. The yield on two-year Treasury bills rose 90 basis points to 2.33%, while the yield on ten-year Treasury bills rose 51 basis points to 2.34%. Similar moves were seen in Canada after the Bank of Canada took off in March and a senior official called on policymakers to “act forcefully” to rein in decades-high inflation. The FTSE Canada Bond Universe fell -3.0% in March, while the Barclays US Aggregate lost -2.8%.
The US dollar strengthened as increasingly hawkish undertones among Federal Reserve officials boosted the greenback’s yield appeal. The Canadian dollar managed to appreciate even in the wake of an overall stronger US dollar, with bullish moves in commodity markets supporting the commodity-biased currency.
Crude oil markets swung sharply as traders assessed the highly uncertain geopolitical landscape and the implications for energy supply at a time when market conditions are already very tight. Still, crude ended the month higher, but pared back some of those gains late in the month after President Biden ordered an unprecedented release of crude from the Strategic Petroleum Reserve in a bid to rein in runaway prices. . Finally, gold rose as investors weighed the fallout from the war in Ukraine, while worries about accelerating inflation also prompted traders to raise bullion prices.