Strong first quarter

March was another good month for the stock markets and was also the end of a strong quarter. The upturn is to a large extent ascribed to a turnaround by the US central bank.

For the month as a whole, the American S&P 500 Index rose by 1.9 per cent measured in USD while the European Stoxx 600 Index climbed 2.2 per cent measured in EUR and the Nordic VINX Index ended the month up 1.2 per cent measured in NOK. In Norway, the Oslo Stock Exchange (OSEBX) fell by 0.25 per cent. 

Interest rates down, shares up

Since the year-end, stock markets have risen on all fronts while government bond yields have continued to fall. Some people find it strange that the stock market upturn and decline in interest rates reflect two different views of the future. However, we have seen this picture several times before in the past decade, driven by the central banks' money-printing. The market unrest in December, triggered by high government bond yields in November and weaker growth and inflation outlooks, has clearly contributed to the turnaround by the US central bank (Fed). The Fed's clear indication of an interest-rate pause and halt in the balance-sheet reduction has led to a repricing of the markets. 

Turnaround by the Fed

Fed chairman Jerome Powell was for a long time viewed as an interest-rate hawk who wanted to normalise monetary policy more than his predecessors. This view was put to rest for good after the last interest-rate meeting at which the Fed announced it would stop QT (reducing the balance sheet) surprisingly early, starting in September. The reduction in sales will start as quickly as in May, and monthly bond sales will be cut from USD 50 billion to USD 35 billion. Although we are still far away from interest-rate cuts and a new round of QE (increasing the balance sheet), the likelihood of these has increased. 

The eurozone is still limping along

The sharp fall in interest rates in the USA has also dragged European interest rates down, and this fall was reinforced by the continued weak German macro figures in March. Leading economic indicators are still pointing downwards. This is especially clear for Germany, which is heavily export-dependent. The macro sentiment is probably not as negative as can be supposed from the leading indicators, so it is not unreasonable to expect an improvement in the future. The fact that the labour figures have not worsened noticeably also helps. 

The road ahead …

We have behind us a strong first quarter. Many stock exchanges have recouped much of the fall before Christmas, and some are already chasing new records. Developments in Asia also appear to be healthier than they have been for ages. At the same time, we are diving into the first-quarter reporting season, where the companies' job is to convince investors that the upturn is well-deserved. 

"Wealth can only be accumulated by the earnings of industry and the savings of frugality" 
John Tyler