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European markets post a strong quarter, but FTSE 100 lags

There’s a saying that March comes in like a lion and goes out like a lamb, and the last few weeks have certainly felt like that for investors who have had to endure a month of whiplash-inducing volatility.

Europe

The bulls got a huge bite taken out of them in the early part of the month, and to some extent, are still licking their wounds now. The last few days have seen a lot of those losses slowly chipped away at, as the month bows out like a lamb, and with slightly less fanfare and optimism than when it started it.  

Today’s European session looks set to end on a positive note, drawing a line under what has been quite a volatile month. 

The FTSE 100 has underperformed, giving back a good proportion of its quarterly gains this month, largely due to weakness in the banking sector which has seen the likes of Barclays underperform, finishing the month down over 14%, while Standard Chartered has lost over 20%. Combined with weakness in basic resources and commercial real estate, the FTSE 100 looks set to finish the quarter just over 2.5% higher.

The German DAX on the other hand looks set to finish the quarter over 11.5% higher, as it looks to eke out a monthly gain after headline inflation in the EU fell by more than expected in March.     

Another monthly decline in the Nationwide House price index for March of -0.8%, the sixth successive fall in a row, has weighed on the house builders today as, on an annualised basis, house prices declined by -3.1%, their worst fall since 2009. The kneejerk reaction has been to see some weakness in the likes of Persimmon, Barratt Developments, and Taylor Wimpey, who have all underperformed. 

On the plus side, Beazley and British Airways owner IAG are both higher after being on the receiving end of positive broker comments.  UBS has gone full reverse ferret on Beazley from “sell” to “buy” citing a strong balance sheet.

US

US markets also look set to finish the week, month, and quarter on an upbeat note after February core PCE, slipped back to 4.6% from 4.7%, while personal spending slowed to 0.2%, down from 2% in January.

This weaker-than-expected number appears to be tempering market expectations that the Fed will be forced to raise rates much more than their current levels.

The Nasdaq 100 has had a very strong quarter, rising close to 19%, compared to the S&P 500 which has risen by over 5%, but before we get too carried away, the reason for the outperformance is largely down to a poor performance in Q4 of last year. Comparing both over a six-month period and the picture is more finely balanced and on a 12-month basis the Nasdaq 100 is still down the most.

Netflix shares are slightly higher after announcing it plans to cut its film output and streamline its business model. The company has said it intends to consolidate the unit which produces small and medium size films which in turn will result in some job losses, as it looks to cut costs and improve its margins.

Virgin Orbit shares have plunged after the company announced it was laying off 85% of its staff and Sir Richard Branson injected £11m into the business as it attempts to find a buyer for a business that is struggling to continue as a going concern. 

Nikola shares are also lower after the truck maker said it was looking to raise $100m by way of a secondary share offering. Chipmakers are also on the back foot, led by Micron Technology on reports that China is opening a review of its products citing cybersecurity risks.    

FX

It’s been a solid quarter for the pound, it has been by far the best performer across the board, against its G7 counterparts, and up over 2% against the US dollar, close to its highs for the last three months. A better-than-expected economic performance in Q4 of last year, after the economy was revised up again this morning, growing 0.1% at the end of last year, has contrasted with the overarching pessimism we saw at the end of last year.

With recent economic data suggesting an improvement in Q1, the outlook for the UK economy has improved significantly. It’s therefore a pity the government has seen fit to throw a bucket of cold water over this improvement with a raft of tax rises on businesses, as well as taxpayers as we head into Q2.

The worst performers have been the Norwegian Krone, on the back of weakness in oil and gas prices, while the Australian dollar has also underperformed. The euro has pulled back from its recent highs after the latest headline CPI reading slowed more than expected in March, coming in at 6.9%, a sharp fall from 8.5% in February. Despite this core prices edged higher, rising to a new record high of 5.7%.

There was little in the way of US dollar reaction to a slowdown in headline core PCE to 4.6% from 4.7% in January. While welcome the 4.6% is still higher than the 4.4% reading seen at the end of last year.   

Commodities

It’s been a difficult quarter for crude oil prices with expectations that a China reopening would serve to galvanise prices back to $100 a barrel, proving to be wildly misplaced, while Russian production cuts in March also failed to have the desired effect in underpinning prices.

Earlier this month Brent crude prices hit their lowest levels since December 2021 before rebounding and have fallen modestly every month this quarter. While we’ve seen a recovery of those lows, the market still appears intent in trying to call for prices to go higher, and yet we’re still in the same downtrend that we’ve been in for the last nine months.

The outlook for the global economy has improved from the widespread pessimism at the end of last year, and while the economic outlook does appear more positive now, we still have to contend with the lag effects of higher interest rates from the last 12 months, which may well constrain demand in the weeks and months ahead.

Expectations of a slowdown in the pace of US rate rises look set to see gold prices finish the month on the front foot, as it looks set to post its best monthly gain since last November when prices rebounded from 18-month lows.


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