Monthly market roundup – March 2024

by InvestEngine

Welcome to the latest edition of our monthly market roundups.

Despite interest rates remaining unchanged both in the UK and the US, March was a strong month for global equity investors thanks to optimism surrounding moderating inflation expectations. With signs of inflation beginning to fall, the market continues to expect initial rate cuts from June this year. 

In our ‘Off the beaten track’ section, find out why pet rocks are making a comeback, the island where there are more easter eggs than people, and how restaurants are experimenting with surge pricing. 

Inflation continues downward trend

March saw UK inflation falling to its lowest in over two years, coming in below forecasts and raising traders’ expectations of interest rate cuts by the Bank of England this summer.

Consumer prices rose at an annual rate of 3.4% in February, down from 4% in January. The reduction, which was partly driven by an easing in food price inflation, left headline inflation at its lowest level since 2021.   

Core inflation, which excludes food and energy, fell to 4.5% in February from 5.1%. 

In the US, headline inflation unexpectedly increased to 3.2%, slightly higher than the 3.1% expected by economists. February’s core measure, the Fed’s preferred underlying inflation gauge, fell to 2.8% from 2.9% a month earlier. 

Interest rates unchanged

The Bank of England decided to keep rates on hold at 5.25% in March.

Somewhat surprisingly, however, it was the first time that no members of the Monetary Policy Committee (MPC) voted to increase interest rates since September 2021. They added that inflation was finally “moving in the right direction”, which the market interpreted as increasing the likelihood of an interest rate cut as early as May or June. 

The Federal Reserve in the US also kept rates on hold, but sharply raised its forecast for US economic growth this year and indicated they still expect to cut interest rates by three-quarters of a percentage point this year, sending US equity markets to record highs.

While Chair Jerome Powell continued to highlight officials would like to see more evidence that prices are coming down, he also said it will be appropriate to start easing “at some point this year.”

In Japan, the Bank of Japan hiked rates for the first time in 17 years from -0.1% to +0.1%, finally ending its negative interest rate policy era. There are now no more central banks with negative interest rates. 

Equity markets surge

Thanks to the increasing optimism surrounding the path of inflation and interest rates, equity markets were propelled higher in March, with all major markets posting strong gains.

The UK led the way, gaining 4.8% for the month, closely followed by Europe at 4.5%. The majority of the month’s gains for the UK came towards the end of the month, following the positive central bank meeting. 

The US market also performed well, rising 3.2% in sterling terms, again boosted by the encouraging inflation rhetoric from the Federal Reserve.

Bond yields fall

Short-term UK bond yields fell in March, as these yields tend to follow movements in interest rate expectations. The expectation for rate cuts caused yields to fall over the month, from 4.3% to 4.2%. Longer-term yields, which tend to be more sensitive to expected long-term inflation rates, followed suit, falling from 4.1% at the start of the month to finish at 3.9%. 

Sterling unchanged

Sterling enjoyed somewhat of a round-trip in March, initially strengthening versus the US dollar, before weakening in the second half of the month following data which showed an unexpected increase in the unemployment rate and a slowing in the pace of pay increases, finishing March at a rate of $1.26. 

Versus the Euro, sterling remained range-bound for the month, finishing at a similar point to where it started at €1.17.

Off the beaten track

More Easter eggs than people

An error by a shop on the Orkney island of Sanday has left it with 720 Easter eggs in the store – far more than its entire population. Sinclair General Stores needed to order 80 eggs, but instead accidentally ordered 80 cases of nine, giving it a total of 720 for the 500-strong population.

Surge pricing is coming to more menus near you

Restaurants are experimenting with technology that can move prices up and down based on demand and staffing. Technology providers are pitching services that enable restaurants to change prices weekly or monthly, increasing or cutting the cost of food, depending on demand and sales patterns. 

Pet rocks are back

Pet rocks, a kooky and best-forgotten fad of 1970s America, are resurfacing in South Korea. South Koreans, who endure one of the industrialized world’s longest workweeks, have a tradition of unwinding in unusual ways, and pet rocks are the latest new thing. The original Pet Rock brand, now co-owned by three media executives, was revived in 2008. The rocks popped up in 2022 movies, “Minions: The Rise of Gru” and “Everything Everywhere All at Once,” and will star in a coming animated series on Netflix, according to brand co-owner Anthony Gentile. Gentile said the company recently tested the market for the Pet Rock in India, and is working on further innovation, including an “AI Pet Rock” that can talk to its owners in more than 40 languages, including Korean.

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