Selected Market Indicators for Periods Ended 31 March 2022

We saw ‘lift-off’ in March as the Federal Reserve (the Fed) raised the federal funds rate (the target rate that banks pay to borrow from each other on an overnight basis). This represents the start of quantitative tightening (which is designed to take money out of the financial system to cool inflation) in the US for the first time since Q4 2018.

The MSCI All Country World Index returned 2.5% (in local currency) with market strength supported by continued ceasefire talks between Russia and Ukraine. Despite removing Russian exposure in early March, the MSCI Emerging Markets Index returned -2.8% (in local currencies) as higher commodity prices weighed on performance in large producing nations such as China. The NZX 50 returned 1.4%, shrugging off the rising interest rate environment and participated in the broader market rebound in March, however lagged broader global indices. Notably, Fisher & Paykel Healthcare (which has a large weighting in the NZX50) continued its recent slide as it issued a warning that its annual revenue would be down by about -13%, with the recent pandemic tailwind for its medical equipment dissipating. Australian equities had a strong month up 6.9% in AUD terms. The NZD had a positive month, despite falling against the AUD (-0.7%). It gained 2.8% against the USD and 8.3% against the JPY, as the JPY fell against most major currencies as the Bank of Japan reiterated its commitment to ultra-loose monetary policy. 

Significant developments for March included:

•  “It’s clearly time to raise interest rates and begin the balance sheet draining” stated Fed Chair, Jerome Powell. The federal funds rate, which has been at the zero-bound since March 2020, was increased by 25bp during March. As if rising rates were not concerning enough for bond investors, the Fed alluded to reducing the USD5tn in US Treasury securities and mortgage debt that has been acquired since the depths of the COVID pandemic as part of its Quantitative Easing program.  
• Russia’s invasion of Ukraine intensified with Russian troops invading the south-eastern city of Mariupol, encroaching on Kyiv, and attacking many other cities across the country. Diplomatic talks between Russia and Ukraine continued with optimism over a ceasefire as Ukraine indicated a willingness to remain a neutral bloc and forgo NATO membership, and Russia retreated from its positions around Kyiv to focus on the Donbass region.
• Benchmark gas futures jumped by over 30%, followed by coal and power prices as President Vladimir Putin indicated that Russia would seek payment for natural gas in Russian Rubles from buyers the Kremlin considers “unfriendly”. Russia has identified the US, the UK and members of the EU as “unfriendly” but also noted that gas will be supplied in-line with requests. Germany has responded by demanding that payments be accepted in accordance with contracts in place.