13 April 2016
Merciful March Mollifies Markets
After the Jolt of January and the Fear of February, Merciful March gave world sharemarkets a boost that even pushed some into the black for 2016. That represents a stunning comeback from what was the worst-ever start to a year on the stock market, which at one point in February had most major markets in correction, down more than 10 per cent for 2016.
But the recovery that began mid-February continued in March, led by the US markets, with the Dow Jones Industrial Average gaining 7.1 per cent for the month, followed by the Nasdaq Composite, up 6.8 per cent, and the broad S&P 500 Index rising 6.6 per cent.
Those results actually brought the Dow Jones and the S&P 500 into positive territory for the quarter, by 1.5 per cent and 0.8 per cent respectively – for the Dow, its biggest quarterly comeback since 1933 – but the Nasdaq Composite remained under water, down 2.8 per cent in the first three months of the year.
In Europe the Stoxx Europe 600 benchmark index also edged ahead in March by 1.1 per cent, cutting its loss for the quarter to 7.7 per cent. The CAC-40 in Paris added 0.7 per cent for the month, to be down 5.4 per cent for the quarter, while Germany’s DAX Index gained just under 5 per cent in March, trimming its quarterly loss to 7.2 per cent. In London the FTSE-100 almost returned to the black for 2016, with a 1.3 per cent rise in March leaving it down 1.1 per cent for the quarter.
The red ink was deeper in Asia though, despite surging markets in March. The Shanghai Composite’s Index’s 11.8 per cent rise in March still left it down 15.1 per cent for the quarter; while in Tokyo, the Nikkei rose by 4.6 per cent in March, shaving the quarterly loss back to 12 per cent. In Hong Kong, the Hang Seng Index’s March gain of 8.7 per cent left it 5.2 per cent in the red for the March quarter.
US Jobs Figures Power Markets
Overall, in March the markets took heart from a surge in US hiring, renewed optimism that the US economy could weather a global slowdown and fresh stimulus from the European Central Bank (ECB). In March, the US saw its fourth-quarter 2015 gross domestic product (GDP) growth revised upward from the previously reported 1 per cent pace to 1.4 per cent, giving a final economic growth rate for 2015 of 2.4 per cent.
The revision reflected a stronger pace of consumer spending than previously estimated.
Consumer spending, which accounts for more than two-thirds of US economic activity, rose at a 2.4 per cent pace in the fourth-quarter, an increase on the 2 per cent rate reported in February.
The jobs market also continued to strengthen. The US economy added a better-than-expected 242,000 jobs in February, making 72 months of uninterrupted job gains the longest streak on record. US businesses have now added 14.3 million jobs in the last six years, halving the unemployment rate to 4.9 per cent.
Better Signs for China
Optimism on the back of these signs of a moderately growing US economy and firming inflation enabled investors to overlook lingering concerns over China’s slowdown. These were exacerbated in March with the release of figures showing that Chinese exports had experienced their biggest contraction since 2009 – in tandem with the economy registering its slowest pace of growth in 25 years.
China’s dampening effect on the world economy led the International Monetary Fund’s (IMF’s) first deputy managing director David Lipsky to argue in March that the global economy was at serious risk of “derailment,” with fundamental questions about the health of the global economy remaining. But later in the month, better manufacturing numbers from China helped to ease concerns over the health of the world's second-largest economy.
In particular, infrastructure spending and pick-up in activity in electronic supply chains and semiconductor and ICT (information and communication technology) exports reported in March also pointed to a better economic outlook for the Middle Kingdom – although caution still prevails.
Iron Ore Goes Berserk
Like their equities counterparts, commodities markets rebounded from deep declines over the quarter and continued to rally in March, led by energy. The price of West Texas Intermediate crude oil rose by 14 per cent, as market participants anticipated a possible production freeze by the oil producers in April; natural gas prices rose also. Despite the perceived continued slowing in China, iron ore had a standout month and quarter, gaining 8.3 per cent in March – including an unprecedented one-day surge of 19 per cent on 7 March – giving it a 24 per cent gain for the quarter. Gold rose by 16.4 per cent in the March quarter, its best gain since 1986.
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