How high will bull markets go?

How high will bull markets go?
  • Markets in March 
  • Global market indices
  • Currencies
  • Cryptocurrencies
  • Fixed Income
  • Commodity sector news
  • Global Macro Updates
  • Key events in April

Markets in March

Global equity markets continued to hit new highs in March with the S&P 500, Nasdaq, Stoxx 600 all reaching multi-year highs. Treasury yields were more volatile this month as the Fed kept rates steady in the range of 5.25% to 5.5% and markets seemed ever more sensitive to any economic data. The March decision marks the fifth consecutive meeting that rates were kept on hold. The Fed also maintained its rate cut expectations for later this year despite increases in growth and inflation expectations. Markets interpreted the Fed news as modestly dovish and are largely pricing the first rate cut by June although there are growing murmurs that the risk of a no-landing scenario is increasing, implying rates will be kept higher for longer before rather than a softening as the market is currently anticipating. Global sovereign yields followed the US lead and were broadly lower in March. However, the Swiss National Bank surprised markets with the first rate cut from a G-10 nation, creating a gap between the Federal Reserve's plans and those of its global counterparts. There is likely to be some rebalancing in global equity markets at the end of the quarter.

Expectations of continuing disinflation and US growth remaining strong are supportive to the markets rosy outlook for April. However, we may see greater divergence in bond markets moving forward as the growth picture and consequent policy outcomes is likely to differ between the US, the UK and Europe. This may fuel FX volatility in April and throughout Q2.

The Economic Picture

The US economy remains resilient, with business activity levels remaining in positive territory. The S&P Global flash US Composite PMI edged down to 52.2 in March 2024, compared with February's eight-month high of 52.5. The flash services sector PMI fell to a three-month low of 51.7 in March 2024 from 52.3 in February. However, flash manufacturing PMI came in at 52.5, up from February’s 52.2 and a 21 month high. Headline CPI increased 0.4% in February after gaining 0.3% in January. On a year-on-year basis, inflation rose by 3.2% in February, a slight uptick from the 3.1% y/o/y rise in January. The Conference Board said that its consumer confidence index dipped to 104.7 in March, essentially unchanged from a downwardly revised 104.8 in February .The labour remains tight although it is starting to show some signs of weakness. Nonfarm payrolls rose by 275,000 in February, and the unemployment rate increased to 3.9%, while the participation rate — the share of the population that is working or looking for work — held at 62.5% for the third consecutive month, and the employment-population ratio was little changed at 60.1%. Average hourly earnings for nonfarm employees rose by 0.1% in February and 4.3% over the year, still above the level the Fed said is necessary to achieve the 2% inflation target. Retail sales were up 0.6% month-over-month in February 2024, following an upwardly revised 1.1% fall in January. However, US consumer sentiment fell in March with the UoM consumer sentiment index edging down to 76.5, the lowest in three months, from 76.9 in February. As largely expected, the Fed kept its policy rate unchanged. The Fed’s new dot projections showed an acceleration on December’s forecast with GDP growth this year now forecast to be at a 2.1% annualised rate, up from the 1.4% estimate in December. The unemployment rate forecast moved slightly lower from the previous estimate to 4%, while the projection for core inflation as measured by personal consumption expenditures rose to 2.6%, up 0.2% from December’s projection. Core PCE inflation is expected to get back to target by 2026, same as in December. As a result, investors have pushed out the possibility of a rate cut to June with some investors speculating that the still resilient US economy may lead to a higher neutral rate with fewer rate cuts for 2024 and 2025.

In the eurozone ECB policymakers have delayed discussing rate cuts, citing wage growth concerns although wage growth appears to be slowing. However, ECB Chief economist Philip Lane said that once the ECB becomes more confident that wage growth is slowing and inflation is indeed heading back to the 2% target as projected, it can start discussing rate cuts. The ECB has placed a strong emphasis on first quarter wage data, due out in late May, suggesting that the rate path is unlikely to be clear for some time yet. Compensation per employee declined to 4.6% in the fourth quarter from 5.1% three months earlier but remains well above the 3% level the ECB considers sufficient to meet the 2% inflation target. In terms of eurozone business activity, it came close to stabilising in March, as flash PMI survey data registered only a marginal decline in output of goods and services. As noted by S&P Global, the eurozone flash composite PMI increased from 49.2 to 49.9 in March, the best reading since June last year. Although this signalled a tenth consecutive month of falling output, it indicated that activity is stabilising towards the 50 level, the dividing line between expansion and contraction. Services PMI increased from 50.2 to 51.1, the second month to rise after six months of decline, and registered the largest gain since last June. Employment increased for a third month running in March after two months of marginal declines at the end of 2023.

In the UK although the economy is expected to emerge from its technical recession, a tight labour market and still high wage growth means the BoE is unlikely to cut rates in the near term. However, BoE Governor Andrew Bailey, said that “things are moving in the right direction” in the UK. Inflation rose by 3.4% in the 12 months to February 2024, down from 4.0% in January. On a monthly basis, CPI rose by 0.6% in February 2024, compared with a rise of 1.1% in February 2023. Core inflation, which excludes food and energy, fell from 5.1% in January to 4.5% in February. The labour market remains tight, with the unemployment rate for November 2023 to January 2024 at 3.9% and largely unchanged in the latest quarter. Wage growth came in at 6.6%. Markets are expecting the first rate cut in August. The UK is likely to emerge from its technical recession in Q1 as retail sales figures for February defied expectations, remaining flat compared to January. This unexpected stability coincided with rising consumer confidence fueled by easing inflation and the prospect of lower interest rates. However, sales volumes are still -1.3% below pre-pandemic levels. Lower inflation and the recent reduction in national insurance contributions are expected to continue supporting consumer spending throughout 2024. In addition, British consumer sentiment remained stable, with households even expressing a positive outlook on their personal finances for the first time in over two years.

Global Market Indices

US:

S&P 500  +3.21% MTD and  +10.04% YTD
Nasdaq 100 
 +1.32% MTD and  +8.65% YTD
Dow Jones Industrial Average 
 +1.96% MTD and  +5.49% YTD
NYSE Composite  +3.68% MTD and  +8.32% YTD

All three major U.S. stock indexes are poised for significant quarterly gains, with the S&P on track for its biggest first quarter percentage gain since 2019.

Europe:

Stoxx 600  +3.45% MTD and  +6.81% YTD
DAX  +4.51% MTD and  +10.29% YTD
CAC 40  +3.50% MTD and  +8.77% YTD
FTSE 100  +3.96% MTD and  +2.97% YTD
FTSE MIB  +6.69% MTD and  +14.52% YTD

European markets have been on the up throughout March, with the region-wide Stoxx 600 experiencing nine weeks of consecutive gains.

Global:

MSCI World Index  +2.31% MTD and  +7.73% YTD
Hang Seng  +0.72% MTD and  -3.84% YTD

Mega cap stocks had a mixed March with the performance MTD of Meta Platforms  +0.76%, Amazon  +1.74%, Alphabet  +8.97%, Microsoft  +1.88% and Nvidia  +14.08%. However it has not been a good month for Tesla as it is  -10.92% MTD and Apple, which is  -4.12% MTD. 

The Magnificent Seven, navigated a complex landscape in March 2024. On the innovation front, Alphabet announced a significant boost in its AI research and development budget, hinting at advancements in various Google products and services. At the GTC 2024 keynote, Jensen Huang, CEO of Nvidia, unveiled the company's new Blackwell GPU architecture. The B200 Blackwell chip significantly surpasses its predecessor, particularly benefiting large language models. Similarly, Meta Platforms remained committed to its metaverse vision, possibly unveiling further development plans or showcasing progress on its VR hardware. Bloomberg reported that Apple is in talks with Alphabet and Baidu to deploy its AI strategy in different markets, expected to be announced on 10th June at its annual worldwide developers’ conference.

However, the month wasn't without its challenges. Regulatory concerns loomed large for Apple, with potential antitrust prosecution under EU’s Digital Markets Act. This follows a fine by the European Commission of €1.8 billion over abusive App store rules for music streaming providers, and mirroring ongoing battles in the US as it faces an antitrust lawsuit by the DoJ. Amazon completed its $4 billion investment in AI startup Anthropic to advance its GenAI edge. Meta Platforms also faced renewed criticism for its handling of controversial content, potentially leading to stricter content moderation policies. Tesla CEO, Elon Musk, remained in the spotlight with questions surrounding his compensation package, while the Company announced rises in prices on its Model Y in the US and EU, additionally, Bloomberg reported that the company would reduce the production of Models 3 and Y in China. While Microsoft continued its focus on cloud computing with Microsoft Azure, the company announced earlier in the month that Mustafa Suleyman and Karén Simonyan are joining to form a new organisation called Microsoft AI, to advance Copilot and other consumer AI products and research.

Energy stocks experienced a significant surge in March as both oil benchmarks, the WTI and Brent, are up more than 2.5% this month. Month to date (MTD) Phillips 66   +11.99%, Shell  +6.14%, Halliburton  +11.39%, Apa Corp  +13.08%,Marathon Petroleum  +16.62%, Occidental Petroleum Corporation  +6.05%, BP  +6.93%, ExxonMobil  +10.11%, Chevron  +2.77%, and Baker Hughes Company  +11.90%. Energy Fuels is  -2.83% MTD.

A battle for control of Guyana's lucrative oil and gas reserves is brewing. ExxonMobill, the current leading operator in the region, is challenging Chevron’s attempt to acquire Hess Corporation's stake in Guyana’s offshore Stabroek block, one of the world’s fastest-growing major oil developments. ExxonMobil claims a ‘right of first refusal’ clause exists in their existing contracts, giving them the opportunity to match any offers for Hess's stake before it goes to another company. This move could potentially derail Chevron's $53 billion deal for Hess, which hinges on obtaining their Guyana holdings.

Phillips 66 is evaluating the potential sale of its 25% interest in a natural gas pipeline extending from Wyoming to Ohio. The stake could generate over $1 billion in a potential sale. Shell has refined its energy transition strategy, reiterating its commitment to achieving net-zero emissions by 2050. However, the company has revised its near-term target for carbon intensity reduction in 2030. In its updated 2024 Energy Transition Strategy, Shell outlines a revised target of achieving a 15-20% reduction in net carbon intensity by 2030 compared to 2016 levels. This represents a slight adjustment from their previous target of a 20% reduction.

Berkshire Hathaway, led by Chairman Warren Buffett, has publicly stated that despite owning more than 25% of Occidental Petroleum Corporation, the investment firm does not have any plans to acquire the oil and gas company. This clarification came in Mr. Buffett's annual letter to shareholders earlier this month.

Materials and Mining stocks saw some relief this month as Gold prices hit new highs. Mining stocks Freeport-McMoRan  +21.35%, Newmont Mining  +13.64%, Nucor Corporation  +3.54%, Sibanye Stillwater  +11.40%, Yara International  +7.80%, Mosaic  +3.41%, and Celanese Corporation  +11.63%. Albemarle is  -6.25% MTD.

Newmont Mining- backed explorer Awalé Resources announced impressive assay results earlier this month. Drilling at their Odienné project in Côte d'Ivoire yielded exceptional findings - 45.7 grams of gold per tonne over 32 metres. This discovery triggered a surge in the company's share price.

Steelmaker Nucor Corporation has preannounced a lower-than-expected first-quarter profit compared to last year. This decrease is partially attributed to weakening demand and pricing within their steel products segment. The company anticipates Q1 earnings per diluted share to fall within a range of $3.55 to $3.65.

Commodities

Oil prices have remained relatively range bound in March although rising on continuing geopolitical risk and uncertainty around global supplies given OPEC+ decisions to cut production. The lack of ceasefire agreement between Hamas and Israel and drone attacks by Ukraine on Russian refineries have been supportive. Oil has also been up due to signs that China may be increasing demand and on potential production cuts to continue from OPEC. In terms of supply itself, spare capacity has reached a multi-year high.

Gold prices hit new highs in March and is bound for its biggest monthly rise since November 2022.as the dollar softened and yields fell following on from the Fed announcement that it expected three rate cuts in 2024. It has held near the all-time peak as traders await Friday’s PCE data and Powell’s speech.Gold was also supported by its status as a safe haven asset given ongoing geopolitical risk in the Middle East and central bank purchases including by China, Turkey, India, and Kazakhstan.

Currencies

The dollar began to soften in March on rate cut expectations and increased bond sales. GBP is +0.06% MTD and  -0.76% YTD against the USD. Sterling remains one of the strongest performing currencies so far in 2024, mostly due to the prospect of higher for longer interest rates in the UK vs the eurozone and the US. The BoE is widely expected to begin easing policy from August following on from its March meeting where it kept rates on hold but suggested that inflation was moving in the right direction. The EUR  +0.15% MTD and  -1.96% YTD against the USD. With inflation falling in the Eurozone’s largest economies and growth remaining stagnant overall, traders are anticipating that the ECB may move to cut rates in June despite its concerns over continuing wage pressures as the eurozone labour market remains tight, with unemployment at record low levels.

Cryptocurrencies

Bitcoin  +12.23% MTD and  +64.47% YTD
Ethereum  +4.72% MTD and  +53.53% YTD

Bitcoin reached its highest level ever in March, reaching over $73,750, with a market capitalization reaching $1.44 trillion on 14 March.due to record inflows into Bitcoin Spot ETFs. It fell back last week to around $63,000 due to the continued outflows from Grayscale Bitcoin Trust. Outflows from the Grayscale Bitcoin Trust reached $1.83 billion over 4 days. However, it has recovered, surpassing the $70,000 mark. In addition, there has been an increase in open market interest. In the derivatives sector, outstanding contracts — or open interest — at the Chicago Mercantile Exchange (CME) Bitcoin futures market has reached over 31,600 as of 27 March. And global interest in Bitcoin and Spot Bitcoin ETFs may continue to rise as the London Stock Exchange (LSE) said on 25 March, that it will start a marketplace for bitcoin and ether exchange-traded notes (ETNs) and will start accepting applications from 8 April. According to The Block's data, open interest in US dollar value for Friday's March end-of-month expiry for bitcoin options contracts on the cryptocurrency derivatives exchange Deribit has increased to a peak of $8.61 billion. In contrast, the end-of-month expiries on Deribit for January and February were significantly lower, at $3.74 billion and $3.72 billion, respectively. An increase in open interest signals higher liquidity and more market participants.

Fixed Income

US Treasuries 10 year yield to 4.19%.
German 10 year yield to 2.29%. 
UK 10 year yield to 3.93%. 

Treasury yields rose early in March before coming down following on from the Fed’s March meeting when it held interest rates and suggested, based on new dot plot projections, that there would be 3 rate cuts this year totalling 75 bps, with the first one likely to be pushed out to at least June. Benchmark 10-year Treasury yields have fallen from 4.26% in February to 4.19%, while Eurozone benchmark German 10-year yields are down even further, from 2.46% in February to 2.29%. UK yields have also dropped, falling from 4.18% in February to 3.93% now. Traders see a 70.4% chance the Fed will begin its easing cycle in June, according to the CME FedWatch Tool. The decline also aligns with typical end-of-quarter risk aversion potentially driven by portfolio rebalancing or deleveraging. Similar patterns were observed on the last Friday of February.

Source: Factset

In Europe, the ECB kept rates on hold during its March meeting but indicated that rate cuts were on the agenda for discussion but that much would depend on the May wage data. Markets have priced in a June cut for the ECB.

In the UK, the Bank of England also kept rates on hold, but Bank of England Governor Andrew Bailey said the market was right to expect more than one cut this year.

Note: Data as of 6:00 pm EDT 27 March 2024

Global macro updates

Will the Fed stay true to its stated path?During the March Fed meeting rates were kept on hold with the expectation, based on the new dot plot projections, that there would be 3 rate cuts this year. However, Fed governor Christopher Waller, said in a speech on Wednesday, 27 March, that although the Fed made a lot of headway reducing inflation in the past year or so, he was disappointed in the inflation readings over the past two months. He suggested that progress had slowed and it was “appropriate to reduce the overall number of rate cuts or push them further into the future” in response to the latest inflation figures. This concern around the actual number of rate cuts that the Fed should implement this year may become a market mover as the Fed, during its March meeting did increase its expectations of the neutral rate by 10 bps to 2.6%.

However, the biggest risk to markets may not come from Fed policy, but fiscal policy as we move further into the election cycle. The Congressional Budget Office (CBO) has highlighted the growing debt burden the US faces, currently at around 97% debt to GDP, with much of that debt growth stemming from tax cuts that were instituted under the Trump administration. The CBO has forecast the debt/GDP ratio at 166% by 2054. The problem promises of fiscal expansion may bring will also be related to the US credit rating. Fitch stripped the US of its triple A rating last year, citing concerns over “a high and growing general government debt burden”. Moody’s still rates the US triple A but said last November that it had changed its outlook from stable to negative. As the presidential nominees move closer to election day in November, we are also likely to see increased rhetoric from both sides about industrial policy, including reshoring manufacturing back to the US and investing in decarbonising the economy. Both of these issues may be inflationary to the US economy, once again putting pressure on the Fed in 2025.

What to think about in April 2024

There are a number of risks and opportunities for investors as we move into April. Although US inflation is expected to fall further in Q2, with expectations that the elusive 2% target will get ever closer, there are concerns that the strength of the labour market and the still low rate of unemployment could lead the Fed to worry about excess demand creating inflationary pressures and delay rate cuts beyond June. Markets will be looking closely to the Fed’s favourite inflation gauge, the PCE Index on Friday when the markets are closed for the Good Friday/Easter holiday as well as to Fed Chair Jerome Powell’s speech, to understand the trajectory for rate cuts in the months ahead. Investors will be focused on the implications of any delay in rate cuts, which, up until now, has been largely muted. They should also be looking to see if there is a broadening out from the magnificent seven stocks leading recent market growth. With the election cycle heating up in the US and discussion around industrial policies and trade likely to come to the fore in coming months, equity investors may also need to consider the implications for some of these tech companies in particular, given where they may be sourcing their inputs from. In addition continuing tensions in the Middle East with Hamas refusing to accept Israel’s latest ceasefire offer and ignoring the UN resolution, along with escalating drone and missile attacks on commercial ships in the Red Sea by Yemen's Houthi group are stoking fears of long-term disruption to global trade as it chokes shipping through the Suez Canal, forcing ships to take the longer route around Africa. There is also the ongoing war in Ukraine that continues to affect energy markets in Europe as well as global prices given drone attacks by Ukraine on Russian energy installations.

Key events in April

The potential policy and geopolitical risks for investors that could negatively affect corporate earnings, stock market performance, currency valuations, sovereign and corporate bond markets and cryptocurrencies include:

7 April 2024 Local elections, Poland. The local elections will serve as a first test of how the new liberal-democratic government is faring and whether the opposition Law and Justice (PiS) party can mount a serious challenge. The Polish central bank chief, Adam Glapiński, who was appointed by the rightwing Law and Justice (PiS) party, is already having to defend the decision to cut interest rates last October, right before the elections when inflation was still in double digits, a move the Tusk coalition has claimed was politically motivated.

10 April 2024 Legislative elections, South Korea. The scheduled elections will be critical for the policy agenda of President Yoon, as the governing party currently holds a minority of seats in the legislature. The South Korean economy has seen improving growth prospects despite inflation ticking up due to higher food prices, with the recovery in exports due to demand for semiconductors. This has helped offset weaker domestic demand brought about by the central bank's high interest rates, currently at 3.5%.

11 April 2024 European Central Bank Monetary Policy Meeting. The ECB has stated that domestic price pressures remain high, in part owing to the strong growth in wages. The unemployment rate is at its lowest since the start of the euro and employment grew by 0.3% in the final quarter of 2023, outpacing economic activity. The ECB will be focused on how wages are developing. However, there is likely to be disagreement as to whether any continuing wage rises should be ignored.

17 April 2024 Legislative elections, Croatia. Prime Minister Andrej Plenkovic (of the governing Croatian Democratic Union, HDZ) on 8 March announced that the Sabor (parliament) will be dissolved on 14 March. The announcement represented a victory for the opposition parties calling for early elections, which are likely to continue engaging in protests against the government over allegations of corruption. Present polling indicates that HDZ are still in the lead although the SDP has gained about 4% in the polls since February.

17 - 19 April 2024 IMF and World Bank Spring Meetings, Washington, DC, USA. Central bankers, finance ministers, private sector executives, and civil society organisations will meet to discuss issues of global concern, including the world economic outlook, poverty eradication and economic development. Although auxiliary events will take place from 15 - 20 April, the core meetings are 17 - 19 April when both the IMF and World Bank will put forth their new global growth projections.

17 - 19 Apr 2024 G7 foreign ministers’ meeting, Capri, Italy. The meeting will likely have the ongoing war in Ukraine and the Israel-Hamas conflict high on the agenda. 

19 April - 1 June 2024 General elections, India. Prime Minister Narendra Modi is seeking re-election to a third term. The election will be held in seven phases over more than six weeks, starting on 19 April 19 and ending on 1 June.

30 April - 1 May 2024 Federal Reserve Monetary Policy Meeting. The Fed is expected to keep rates on hold against the 30 April to 1 May meeting. The main focus will likely be on unemployment growth as the Fed will be looking for some slight softening to help justify any credit easing. The Fed could signal that the 3 cuts anticipated in the March meeting may not materialise if progress is not made on inflation in what increasingly appears to be an economy sending out overheating signals. Atlanta Federal Reserve President Raphael Bostic has said he now expects just a single quarter-point interest rate cut this year versus two cuts that he had projected previously, due to persistent inflation and stronger-than-anticipated economic data. This question on the number of cuts has also been posed by Fed governing board member Christopher Waller who suggested that it was “appropriate to reduce the overall number of rate cuts or push them further into the future” in response to the latest inflation figures. The Fed also looks set to slow down its quantitative tightening (QT) somewhat sooner than previously expected although, as Fed Chair Jerome Powell said, it wants to avoid some of the stresses that emerged the last time it was conducting QT.

While every effort has been made to verify the accuracy of this information, EXT Ltd. (hereafter known as “EXANTE”) cannot accept any responsibility or liability for reliance by any person on this publication or any of the information, opinions, or conclusions contained in this publication. The findings and views expressed in this publication do not necessarily reflect the views of EXANTE. Any action taken upon the information contained in this publication is strictly at your own risk. EXANTE will not be liable for any loss or damage in connection with this publication.

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