Market review

Quarter in review

The first quarter of 2024 was marked by continued strength for risk assets, with a number of major equity indices extending record highs. Economic data kept surprising on the upside, which lifted hopes that a recession could be avoided. Sharp upward moves in US yields weighed on global fixed income markets.

8. Apr. 2024

8 minutes

Chapters

01
Global equities
02
US
03
South Africa
04
China
05
Emerging markets
06
Europe and UK
07
Global fixed income
08
Global credit
09
EM fixed income
10
Commodities
01

Global equities

Shipping containers
Strong economic data and optimism around AI drove markets higher. Japan surged.

Global equities had another strong quarter, with several markets reaching all-time highs. That was driven by growing hopes for a soft economic landing, or even a ‘no landing’, along with ongoing optimism around AI. The S&P 500 posted consecutive double-digit gains for the first time in over a decade, while in Japan, the Nikkei saw its strongest performance since the global financial crisis, propelling it above its previous record high from 1989.

Economic data was broadly positive, which saw expectations of a recession in the US fall. However, inflation was slightly higher than expected in both January and February, which prompted the Federal Reserve to caution against cutting rates. As it stands, the market is currently pricing in three 25 basis point cuts in 2024, down from six at the turn of the year.

At the sector level, IT and communication services led the way, with energy and financials not far behind. Sectors hampered by the prospects of rates being higher for longer – namely real estate and utilities – were notable laggards.

Indices (total return in local currency)
S&P 500 10.4%
Nasdaq Composite 9.3%
MSCI ACWI 8.2%
Nikkei 225 21.4%
EuroStoxx 600 7.0%
FTSE 100 4.0%
Hang Seng Index -2.5%
SSE Composite 2.2%

Source: Bloomberg, for the quarter ending 31 March 2024.

02

US

New York City, Manhattan
US equities continued their upward march.

The S&P 500 recorded another double-digit gain for the first quarter and closed out the day at a record high no less than 22 times along the way. The major drivers were the familiar AI family of stocks, led by NVIDIA, which almost doubled after delivering another blowout sales forecast. The equal-weighted S&P 500 was up a smaller +7.9%, and the small-cap Russell 2000 was only up +5.2%, illustrating the continued narrow nature of the rally.

Aside from the robust economic data and AI-excitement, the biggest domestic story was the rising concerns relating to commercial real estate (CRE), particularly at the start of February. New York Community Bancorp raised their expected loan losses on CRE, heightening fears that the full consequences from higher interest rates were not yet priced in, especially given a substantial amount of refinancing that is due over the next two years. All of this hampered US regional banks over the quarter.

Moving to politics, there were further twists and turns in the US presidential race as both Trump and Biden secured their respective nominations for their parties, setting up the first rematch in 70 years. The former president was active in the stock market, with Trump Media and Technology Group (TMTG), the parent company of his Truth Social network, listing on the Nasdaq exchange.

03

South Africa

Green point, Cape Town stadium at sunset
A stronger March failed to offset a weak start to the year.

Despite March being much stronger, declines in the first two months of the year saw South African equities close the first quarter in negative territory. Weighing on performance were financials and resources, while industrials managed to eke out a positive return. Encouragingly, a sharp rise in precious metal prices in March lifted the broad index, largely supported by PGM and gold miners that benefitted from bullion reaching an all-time high.

In terms of economic indicators, South Africa's economy grew by just 0.1% quarter-on-quarter (q/q) in Q4 2023, narrowly avoiding a recession following the previous quarter’s 0.2% decline. South African Reserve Bank (SARB) Governor Lesetja Kganyago highlighted supply-side constraints (particularly port and rail) as key detractors but assessed the risks to growth to be balanced. It was a different story for inflation, however, with the risks skewed to the upside. For February, annual inflation accelerated to 5.6% while core inflation increased to 5%, both above market expectations. Against this backdrop, the SARB maintained its key repo rate at 8.25%, as expected.

Indices (total return in ZAR)
FTSE JSE All Share Index -2.2%
FTSE/JSE Financials Index -10.1%
FTSE/JSE Industrials Index -6.7%
FTSE/JSE Resources Index -3.0%
FTSE/JSE ALBI -1.8%
STEFI 2.0%

Source: Bloomberg, for the quarter ending 31 March 2024.

04

China

Shanghai Bell Tower
China’s move to shore up its equity market bore fruit, but confidence remains far from restored.

Chinese equities were lower over the quarter, but there was a sharp positive momentum swing in February, just before the Lunar New Year holiday, when the Chinese authorities decided to intervene to help stabilise sentiment towards an equity market which had declined to five-year lows. The Head of the China Securities Regulatory Commission was replaced, and the securities regulator tightened the rules around lending and short selling. The benchmark five-year loan prime rate, which directly impacts household borrowing costs, was lowered by 25 basis points, in a move to support the property market.

The full package of measures saw Chinese equities post their strongest monthly gains in just over a year in February, mostly erasing the sharp declines witnessed in January that were fuelled by concerns around bankrupt property developers and indebted cities. March was a lot more subdued as the market digested the raft of newly unveiled measures. Despite China’s effort to restore confidence in foreign investment into the country, there is very little inflow impact from international investors to the asset class so far.

Interestingly, Chinese Premier Li Qiang announced an ambitious 2024 economic growth target of around 5%, promising steps to transform the country's development model at the annual meeting of the National People's Congress. The policy shift towards high-tech manufacturing and original innovation continues to signal the long-term structural transformation in China’s growth model. China has historically depended on substantial infrastructure and property spending to drive growth, and it appears this is no longer the preferred strategy. While this was a welcomed longer-term transition for the Chinese economy, this new direction did raise concerns that the government is less focused on a consumer-driven economic recovery.

05

Emerging markets

Aerial view of futuristic star-shaped airport
Tech-heavy Taiwan and South Korea were standout performers, as was Turkey.

Emerging market equities concluded the first quarter of the year on a positive note, fuelled by optimism regarding a ‘soft landing’ in the US, record highs on Wall Street gauges, and sustained excitement surrounding artificial intelligence. The tech-driven rally in the US extended to other regions, with Asia emerging as the best-performing market within the EM landscape, particularly Taiwan and South Korea, homes of TSMC and Samsung, respectively. Indian equities continued to power higher, backed by encouraging GDP growth, while in emerging Europe, Turkey was the standout as runaway inflation sent local savers piling into shares, especially in the tech space.

That said, returns were more subdued in other parts of the EM landscape. In Latin America, Brazil experienced losses over the quarter linked to the weakness in the iron ore market. In China, optimism surrounding additional stimulus measures helped the stock market rebound from five-year lows which was beneficial for the broader EM market. Nevertheless, lacklustre domestic demand and the ongoing property market crisis continued to weigh on investor sentiment.

06

Europe and UK

Frankfurt, Germany sunrise
Leadership was narrow, particularly in Europe. The UK lagged developed peers.

European markets closed the first quarter of 2024 around 7% higher as inflation data continued to show that pressures from higher prices are cooling. Leadership was again narrow, however, with the larger cap Stoxx 50 up by 12%, helping feed the narrative around the “Granolas” – 11 pharma, tech and luxury companies that have accounted for half of the market’s gain over the past year. The European Central Bank left interest rates on hold over the period but did cut its forecasts for inflation and growth, opening the door to possible rate cuts in the coming months.

The UK was again a laggard compared to developed market peers, although the theme of larger caps outperforming smaller companies continued. The economy shrank again in Q4, however growth returned in January, indicating the recession may be short lived. UK inflation fell more than forecast to 3.4 per cent in the year to February, the lowest since 2021, suggesting that summer interest rate cuts remain on track and providing relief for Rishi Sunak’s embattled government. In the Budget, the UK chancellor announced the creation of a British ISA which will give savers an additional £5,000 tax free allowance on investments in UK stocks.

07

Global fixed income

Curved wooden shape
US Treasuries rose across the curve. Japan lifted rates for the first time in 17 years.

At the very start of the year, markets were pricing in around 150 basis points (bps) of cuts by the US Federal Reserve (Fed) over the course of 2024, but higher-than-expected inflation and surprisingly strong jobs data prompted a revision of this. Furthermore, minutes released in February from the Fed’s January meeting showed that most of its members thought moving too quickly to cut rates carried a bigger risk than keeping policy tighter for longer. US Treasury yields rose and the US dollar strengthened, and by the end of February, only 85bps of cuts were priced in by the market. Subsequently, figures released in March showed that inflation remained sticky in February and this put further upward pressure on US yields. However, a dovish-leaning press conference and the Fed’s decision to raise the 2024 growth and inflation forecasts while maintaining its median ‘dot plot’ forecast of three rate cuts this year brought yields back down somewhat. Overall, US Treasury yields rose across the curve, with the 10-year Treasury yield rising from 3.88% to end the quarter at 4.20%.

In Europe, 10-year yields climbed across the continent over the quarter, notably in Germany and France, with yields in the UK also rising. This was largely due to the currently high correlation between US and other government bond markets. In addition, the European Central Bank (ECB) continued its relatively hawkish narrative over January and February. However, the ECB appeared more dovish in its March meeting, issuing lower-than-expected core inflation forecasts for 2025; yields across Europe fell as a result. Looking ahead, ECB President Lagarde told the market that while the ECB is making progress on inflation, risks still remain, and that by June the bank will be in a better position to assess the path of interest rates.

In the UK, the Bank of England kept its policy rate unchanged over the quarter, while inflation was slightly lower than expected (both core and headline figures). In March, yields began to fall following dovish comments from Bank of England (BoE) Governor Andrew Bailey, who said that inflation doesn’t need to fall back to the bank’s targets before rate cuts can begin. In addition, two BoE members changed their votes from a hike to a hold, which was a dovish surprise. As a result, UK yields fell meaningfully over March, but rose for the quarter as a whole.

In Japan, the main developments over the quarter came in March, as the Bank of Japan (BoJ) made its first interest rate hike in 17 years, officially ending its negative interest rate policy, and taking the policy rate to a range of 0.0%-0.1%. The bank’s yield curve controls were also scrapped. These policy changes were largely in line with expectations following media reports in the week prior to the meeting. However, what disappointed the market and ultimately led to the weakness in the Japanese yen was the BoJ’s continuation of Japanese government bond purchases at its current pace, the lack of forward guidance on the interest rate path from here, and the emphasis on financial conditions remaining accommodative for the time being.

Indices (total return in local currency)
The Bloomberg US Treasury Index -1.0%
Bloomberg Global-Aggregate Total Return -2.1%
The Bloomberg EuroAgg Index -0.3%
JPM CEMBI 2.3%
08

Global credit

Kings Cross roof
Most credit markets delivered positive returns, especially floating rate products.

Credit markets performed well overall during the quarter, with most areas of the broader market delivering positive total returns despite the sell-off in developed-market sovereign rates. The top-performing asset classes over the quarter were floating-rate products, namely leveraged loans and structured credit (collateralised loan obligations). These benefited from the rise in risk-free rates, especially in the US. Other positive performers included both US and European high-yield bonds, as credit spreads continued to tighten to help offset the negative impact of sovereign rate rises. The bank capital market, also known as AT1s, also enjoyed a strong quarter, as it continued to recover from the volatility seen over much of 2023. In contrast, the US investment-grade market posted negative total returns due to its higher sensitivity to sovereign rate moves, while the returns from the European investment-grade market were broadly flat.

09

EM fixed income

City skyscrapers
EM sovereign debt had a mixed quarter, while corporate debt had a strong start to 2024.

It was a mixed quarter for emerging market sovereign debt from a performance perspective. The local bond index (JP Morgan Government Bond Index-EM) fell by 2.1%, with this being driven entirely by EM FX, while local bond returns were a slight positive (+0.2%). EM currencies came under pressure over the quarter from the strong US dollar given the rise in US Treasury yields over the period. Across emerging markets, many central banks continued with or began their rate cutting cycles during the quarter. This was particularly notable in Latin America, as inflation continued to fall, allowing some central banks to accelerate the pace of rate cuts.

In the hard currency sovereign debt market, the JP Morgan EM Bond Index (EMBI) posted a solid quarter, gaining 2.0%, driven entirely by high-yield issuers (+4.9%); the investment-grade part of the index fell -0.8% overall. High-yield issuers benefited from an improved appetite for risk over the quarter – distressed markets performed particularly well, while investment-grade bonds were more susceptible to the rise in US Treasury yields. Top performers in the hard currency index included Ecuador and Argentina. In Ecuador, the finance minister is seeking a multi-year IMF programme and has implemented new fiscal measures to get the country closer to a deal. In Argentina, data over the period showed a large fiscal surplus, highlighting that President Milei’s large-scale fiscal adjustments are starting to bear fruit.

It was a strong start to the year for EM corporate debt markets, with the JP Morgan Corporate EM Bond Index (CEMBI) returning +2.3% over the quarter. This positive performance in the face of higher developed-market sovereign yields was driven by the tightening of credit spreads, as investors’ appetite for risk improved. This was especially the case among high-yield issuers, which drove the index’s performance and returned +4.2%. Here, the positive return from spread tightening more than offset the weakness from the rise in US Treasury yields. Turning to investment-grade markets, issuers within the index delivered a modest total return (+1.0%); this area of the market is more sensitive to moves in Treasury yields, but spreads tightened to offset the negative impact of this.

10

Commodities

Texture of Crude oil
Oil performed strongly, gold surged to new highs, while iron ore had a dreadful quarter.

The gold price hit new highs in March, ending the month at about US$2,230 per Troy ounce. That left the precious metal about 8% higher over Q1 2024 overall. Several factors supported gold, including the prospect of monetary easing by the US Federal Reserve and other major developed central banks, uncertainty over the macro outlook, geopolitical tensions in the Middle East and Eastern Europe, and continued buying by central banks globally. The shares of gold producers lagged gold, with the NYSE ARCA Gold Miners Index returning 1.3% in Q1. The price of a barrel of Brent crude also moved higher in Q1, with a 4.6% gain in March to about US$88 resulting in a c.14% gain over Q1 overall. Oil was supported in the period by a decision by oil-producing nations to extend voluntary production cuts, leading to expectations that the oil-market deficit later this year will be larger than previously forecast, as well as supply disruptions linked to the Ukraine-Russia war and conflict in the Middle East.

Among industrial metals, copper was one of the best performing, maintaining its positive momentum of last year through Q1 2024 as worries about a squeeze on copper supply outweighed disappointment over Chinese growth, and hence copper demand. The difference between the metal for immediate delivery vs. future delivery reached its highest-ever level in March, reflecting expectations that more Chinese smelters may cut production, as well as the storage-cost impacts of higher interest rates. Iron ore was among the worst-performing metals, on disappointing Chinese demand and higher inventories. 

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