Monthly Market Outlook: March 2018

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February saw the return of volatility for stocks after nearly two years, as a confluence of catalysts affected equity markets: US Bond yields breaking critical levels above 2.55%, a new more hawkish and uncertain Fed, the deterioration of the global trade climate and renewed political uncertainty in Europe and the UK. Further, all this was preceded by an extra-ordinarily good January. As a result, global equities shed 4.1 % for the month in USD terms, and are now (as of 7 March) 7% below their cycle-high levels. The move obfuscated one of the best earnings quarters in the US during this cycle, with over 74% of companies beating expectations in both final profits and sales. Meanwhile, the macroeconomic backdrop remained broadly robust and supportive, although global growth, especially in the manufacturing sector, lost some momentum, mainly as a result of supply chain constraints. UK Equities lost 3.4% for the month, as consumption and the energy/materials related sector continued to suffer. Sterling lost 3% vs the US Dollar and 1.3% versus the Euro, as uncertainty over Brexit and general volatility took a toll on UK risk assets. As a result, performance for assets denominated in foreign currencies improved. In Sterling terms, global equities lost 1.4%, US equities shed 0.9%, European equities fell 2.5%, Emerging Markets fell 1.9%, while Japanese equities gained 1.5% a result of the stronger Yen (+5.3% vs GBP). Commodities were also down, with Oil losing 4.8%, Gold down 2% and Industrial Metals down 2.7%. Meanwhile the US 10 Year Treasury yield rose from 2.70% to 2.86% by the end of the month. However 10 Year bonds in the UK and Germany little changed. In fact the UK yield curve flattened, as the 2 Year bond yields rose a result of commentary from the Bank of England alluding to faster than anticipated interest rate hikes. The global equity retrenchment left valuations at relatively more attractive levels, especially in light of accelerated earnings. However, broad risks and an ageing cycle have deterred investors from taking advantage in February.