The following reflects the general views of our Treasury & Investment Office (T&IO) and should not be taken as a recommendation or advice as how any specific market is likely to perform.
These views are as at the end of March 2024.
The value of investments can go down as well as up. Investors could get back less than they put in.
Please remember that past performance is not a reliable indication of the future performance.
The first quarter saw further declines in inflation across most major economies. However, with inflation in many countries still above central banks’ target levels, there was a shift in expectations regarding when central banks will begin to unwind the current tightening cycle.
The UK’s annual headline inflation rate fell to 3.4% in February, marking its lowest level since September 2021. Inflation also continued to slow in the eurozone where it came in at 2.6% in February. In the US, inflation proved more stubborn: the annual rise in core inflation, which excludes food and energy, was 3.8% in February, a slower decline than forecasted from 3.9% in January.
Switzerland became the first major central bank to kick off the rate easing cycle, reducing its key interest rate to 1.5%. The Bank of England and the Federal Reserve kept rates unchanged. Meanwhile, the Bank of Japan ended its negative interest rate policy, increasing rates for the first time in 17 years.
The UK economy expanded by 0.2% in January after ending 2023 with two consecutive quarters of negative growth. The US economy grew at an annual rate of 3.4%, bolstered by a strong labour market and robust consumer spending. Lacklustre domestic demand and low manufacturing activity in the eurozone resulted in continued economic stagnation. Simultaneously, weak consumer demand in Japan led to a relatively modest annualised expansion rate. China's economy is showing signs of recovery as increased factory output and investment growth contributed to a 5.2% annual increase in gross domestic product.
The UK stockmarket made a positive start to the year as share prices extended their recent advance. However, the UK continued to lag other regions and the global market index as investor confidence was hurt by the lacklustre economic outlook. From a sector perspective, industrials led the way, while financials and healthcare also outperformed the broader market. In contrast, materials was the weakest sector. Real estate and utilities were notable laggards too. Meanwhile, large-cap stocks in the FTSE 100 Index outperformed smaller companies.
US equities kicked off the year with a robust rally and outperformed the global market. The S&P 500 Index repeatedly hit record highs as share prices continued their upward momentum from the end of last year. Canada’s stockmarket also made a positive start to the year.
European equities rose for the second consecutive quarter. Decent corporate earnings, the continued gradual decline in inflation and expectations of interest rate cuts helped fuel investors’ risk appetite. Information technology stocks led the way amid ongoing excitement about the potential of artificial intelligence.
The Japanese stockmarket rallied fiercely. Asia Pacific ex Japan lagged the FTSE World Index.
UK government bonds returned -1.6%, underperforming US government bonds and German government bonds. Persistent inflation led investors to scale back their expectations for interest rate cuts this year, which caused bond prices to retrace some of their gains in the previous quarter. The Bank of England maintained interest rates at 5.25% in March.
Global bond markets ended with a loss after a volatile start to the year as markets adjusted their expectations for the path of interest rates. 2024 began with market participants confident that rate cuts were on the horizon. However, in the US mixed inflation data and strong economic data throughout the quarter tempered expectations, with the first cut now priced in for June.
UK corporate bonds rose 0.2%, while high yield bonds returned 2.3%.
UK commercial property capital values fell in the three months to February 2024 (latest month for which data is available). According to property consultant CBRE, prices fell 1.3%, compared to a 2.0% drop for the three months to November 2023. With price falls decelerating in January and February, All UK commercial property recorded a small positive return (which includes rental income) over three months to end-February. Performance was most challenging in the Office sector. Whilst capital values also fell in Retail, declines in 2024 have been modest. Capital values in the Industrial sector were the most resilient. The UK government bond yield rise represented something of a headwind for UK commercial property, as investors typically compare property yields with gilt yields.