For those used to smooth, undisturbed, Fed-assisted, no-risk-all-return, sailing, both the month of March and the entire first quarter were quite the wake up call, because while the broader market did manage to recover from down for the year just a few days before the quarter end courtesy of an impressive last day window dressing rally, as Deutsche's Jim Reid explains Q1 has not only turned out to be a fascinating roller-coaster ride for most asset classes but has also seen many consensus views from the start of the year struggle for momentum. The main consensus trades at the start of the year were perhaps; a) bullish DM equities, b) bullish the US Dollar, c) bullish the Nikkei, d) bearish DM rates, e) bearish Oil, f) bearish EM equities, and g) bullish DM credit. Many of these trades have struggled so far although the last few days of the quarter have helped some.
Indeed although the S&P 500 (+1.8% YTD TR) and Stoxx600 (+2.6% YTD TR) are off to their worst start since 2009 (post-Lehman crisis) and 2011 (European sovereign crisis), respectively, they have seen a decent end to the quarter after being lower YTD in mid-late March. The peripherals have been the stand-out equity markets in the DM space. Elsewhere the Dollar is flat against a basket of major currencies, the Nikkei is -8% YTD and WTI is up about 3%. The bearishness in EM equities has generally played out well with equities in Russia, Brazil and China down -9%, -2% and -4% year to date but who would have thought that Indian and Indonesian equities would be up by more than 6% and 11% by now given the struggles elsewhere in the sector?
If one narrows the time frame just to the month of March, Deutsche Bank notes that the month was certainly lively as far as macro headlines were concerned. We started the month with escalating tension in Ukraine/Crimea which led to the annexation of the Black Sea peninsula. We've also had never-ending headlines and stories from China on concerns around growth and corporate defaults. The widening of the trading band in CNY was another major event although perhaps not a surprise given the authorities' priorities around reforms - a theme that was the major take-away from the latest National People's Congress in early March. Away from EM, it was perhaps the hawkish display from the FOMC that surprised markets the most which also led to a bear flattening of the UST curve.
With all those key stories contributing to the volatility in March, soft commodities (Wheat +16%, Corn +10%), the Bovespa (+7.1%), FTSEMIB (+6.1%), Portuguese equities (+3.9%), EM Bonds (+2.7%), and the IBEX (+2.5%) were amongst the best performers. On the other hand, Silver (-6.8%), Copper (-6.6%), Russian equities (-5.2%), Gold (-3.2%) and the Hang Seng (-2.6%) were the main underperformers in March. The uncertainty in Ukraine (a major global wheat exporter) and weather issues in the US certainly supported the rally in Wheat; whereas the heightened volatility in RMB and fears around commodity financing deals contributed to the sell-off in Copper. Otherwise, it was an uninspiring month for DM equities with S&P 500 (0.8%), Stoxx 600 (-0.7%) and the Nikkei (+0.6%) all fairly flat. Considering the negative returns in Treasuries (-0.3%), US credit did reasonably well with most indices holding up modestly in positive territory. European credit also did well overall with a slightly better month for high yield (+0.7%) than high grade (+0.4%) on a total return basis.
Best and worst performing assets in Q1:
And just the month of March: