Unexpectedly strong resistance

In March, the stock markets initially continued their downward trend, but were then able to catch up significantly. This was the stock markets' reaction to, among other things, Ukraine's unexpectedly strong resistance to the Russian army. At the same time, the need for action by central banks grew in view of the further increase in inflation.

The war tragedy in Ukraine overshadowed the month of March. The stock markets corrected in the first third of the month, in some cases significantly, and thus initially continued their downward trend. During the month, however, they were able to catch up significantly. The German stock index DAX recorded only a moderate minus of -0.32%, and the broad European index Stoxx Europe 600 closed the month with a plus of 0.61%. On the other side of the Atlantic, the S&P 500 rose significantly by 4.73%. In contrast, Hong Kong's Hang Seng Index declined by -2.32%. Globally, equities - as measured by the MSCI World - rose by 3.66% (all index figures in euro terms).

Investor sentiment in March was influenced by the course of the war. Ukrainian resistance to the Russian aggressors was stronger than expected, and the announced withdrawal of Russian troops from the Kiev region boosted vague hopes for a ceasefire and a negotiated settlement. At the same time, this development and the release of strategic oil reserves by the US government put pressure on the oil price, which in turn had a positive effect on the stock markets. The fact that in parallel China - the world's largest oil importer - demanded less oil also depressed the oil price, but this was no good news for the global economy. The decisive factor was a renewed covid outbreak, as a result of which lockdown measures were imposed for the metropolitan regions of Shenzen and Shanghai.

From a regional perspective, stock markets in the USA and Canada benefited most, as these countries are not directly affected by the war. In addition, they are often in a position to step in as suppliers if Ukraine is no longer able or allowed to supply agricultural raw materials due to the consequences of the war or Russia due to the sanctions. The USA and Canada could also benefit from the export of energy and armaments.

On this side of the Atlantic, on the other hand, the consequences of the war were felt much more strongly, on the one hand because of the regional proximity, and on the other hand because of the high dependence of the EU and especially Germany on energy supplies - gas, oil and coal - from Russia. The prices for energy and agricultural commodities, which were already high before the outbreak of the war, rose further recently and increased the already strong inflationary pressure. In the euro area, inflation rose to a record 7.5% in March compared to the same month last year. In the USA it was already at 7.9% (as of the end of February), and the markets expect inflation to rise further.

This increased the need for action by the central banks. In a first step, the US Federal Reserve raised its key interest rates in March by 25 basis points to a range of 0.25-0.50%, and the market expects further interest rate steps, possibly also by 50 basis points, in the coming months up to a rate of 2.50-2.75% towards the end of the year. The ECB left its key interest rates at 0.0% in March, but no longer ruled out rate hikes. The gold price rose by 1.49% to US$ 1,937.44 per troy ounce in the face of geopolitical uncertainty and high inflation. The bond markets also reacted with a rise in interest rates. At 0.62%, 10-year Bunds yielded about 48 basis points more than in the previous month, and the yield of their US counterparts increased by 50 basis points to 2.33%.

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