Global markets in March were seen recovering somewhat from the volatility experienced in February. But the fears of a US-China trade war continued to affect markets through the month. President Trump went beyond his earlier tariffs on steel and aluminium, calling for tariffs on certain Chinese exports to the US. These tariffs have been met by retaliatory tariffs by China on US exports. However, analysts see these moves as merely attempts at creating leverage for trade negotiations.
At its March meeting, the Federal Reserve announced its first-rate hike for the year as expected. It also forecast at least 2 more hikes in the year, 3 hikes for 2019 and 2 more for 2020. This highlighted its growing confidence that tax cuts and government spending will lead to higher US growth and inflation, spurring further tightening.
Short-term lending rates measured by the 3-month LIBOR moved up to reach 2.3% in the month, having started the year at 1.7%. This increase in global borrowing costs is partly due to the US Fed’s rate hikes, but is also partly due to the impact of US tax reforms causing repatriation of US dollars held in foreign banks by US firms. These foreign banks have raised deposit rates in order to attract funds to replace the dollars being repatriated, pushing up lending rates as well.
Net portfolio inflows of about $7.6 billion were recorded in the 21 emerging market economies monitored by the Institute of International Finance (IIF) for the month. While this marked a reversal of the outflows in February, the overall inflows were much less than what was seen on a monthly basis in the previous year. This could be a reflection of caution seeping into investors’ decision making in terms of both EM debt and equities, while continuing to find them an attractive asset class.
Brent crude prices returned to the $70 price level by end-March helped up by easing concerns of a US-China trade war and promises by Saudi Arabia to continue to work together with Russia and others on balancing the oil market. In addition, unexpected reductions in US stockpiles and another bout of Saudi-Iran tensions helped prices move up during the month.
Source: Frontier Blog