U.S.
March witnessed heightened volatility in U.S. equity markets, driven by investor anxieties surrounding impending U.S. tariff announcements, persistent inflationary pressures, and the Federal Reserve’s policy trajectory. President Trump’s recent indication of “lenient rather than reciprocal” tariffs offered some reassurance, suggesting a potential narrowing of scope and delays in sector-specific duties. However, the S&P 500 remained unsettled amidst mixed economic data and geopolitical developments.
Consumer confidence continued its downward trend. The Conference Board’s current conditions index experienced its fourth consecutive monthly decline. Notably, the future expectations index plummeted to a 12-year low of 65.2, reflecting significant concerns about inflation, job security, and the potential economic repercussions of President Trump’s tariff policies.
Technology stocks, particularly Nvidia, remained in focus. Despite exceeding revenue projections with a nearly 80% year-over-year increase to $39.3 billion, Nvidia’s share price fell following cautious forward guidance. The company’s projected slight decrease in gross margin to 71% for the first quarter raised concerns about a potential temporary plateau in AI-related product demand.
The Federal Reserve maintained the federal funds rate at 4.25%-4.5% during its March meeting, aligning with expectations and extending the rate-cut pause initiated in January. Bond markets reflected evolving investor sentiment, with the 10-year Treasury yield climbing to 4.35% amidst renewed optimism regarding President Trump’s proposed tax reforms. Simultaneously, growing expectations of future Federal Reserve rate cuts later in the year underscored increasing concerns about a weakening economic outlook, as GDP growth forecasts were revised downward to 1.7%.
Eurozone
The Eurozone’s economic activity exhibited marginal improvement in March. The HCOB Flash Composite Purchasing Managers’ Index (PMI) rose to a seven-month high of 50.4, up from 50.2 in February. This slight increase, while positive, highlights the region’s fragile and uneven economic recovery.
The manufacturing sector showed signs of stabilisation after a prolonged downturn, with Germany, Europe’s economic powerhouse, leading this tentative rebound driven by increased industrial production. The HCOB German Flash Composite PMI reached 50.9, its highest level since May of the previous year.
Conversely, the services sector experienced weakening activity, reflecting disparate progress across member states. France, in particular, continued to lag, with its private sector contracting for the seventh consecutive month, indicating persistent structural challenges.
ECB cut interest rates again
The European Central Bank (ECB) reduced its deposit rate by 25 basis points to 2.5% at its policy meeting this month as German government bond yields soar above the existing ECB rate for the first time in two years, electrified by the announcement of an extraordinary fiscal stimulus plan. The fiscal splurge may cause the ECB to pause its easing campaign as it assesses the implications of the dramatic shift. In a shift in tone, the ECB acknowledged that “monetary policy is becoming meaningfully less restrictive,” suggesting a potential moderation in the pace of future rate cuts.
Geopolitical tensions further complicated the economic landscape, as the European Union recalibrated its foreign policy in response to evolving dynamics, particularly regarding U.S. stances on Russia and Ukraine. Despite these challenges, European markets demonstrated resilience, with investors maintaining cautious optimism about the region’s economic prospects.
UK
The FTSE 100 advanced in March, supported by gains in the mining and energy sectors. Rio Tinto, Anglo American, and Glencore saw increases between 2.4% and 3.6%, bolstered by higher metal prices and a weaker U.S. dollar. Shell also experienced gains following the reaffirmation of its $2.8 billion share buyback program.
Inflation moderated to 2.8% in February, down from 3.0% in January, but borrowing costs remained elevated. The 10-year gilt yield rose to 4.7%, a multi-decade high, amid persistent concerns about the UK’s fiscal position.
Chancellor Rachel Reeves’ Spring Budget included £4.8 billion in welfare reforms, increased defense spending, and a £2 billion investment in affordable housing. The Office for Budget Responsibility revised its 2025 growth forecast downward to 1%, citing ongoing economic pressures.
The Bank of England maintained interest rates at 4.5%, signaling caution despite progress on inflation. Consumer spending remained constrained by rising housing and food costs, which continued to strain household budgets.
China
China reaffirmed its economic objectives by setting a 5% GDP growth target for 2025 and expanding its budget deficit to 4% of GDP, as authorities sought to mitigate growing external pressures.
To support these goals, Beijing announced a 3 trillion yuan ($411 billion) special bond program to fund infrastructure and strategic sectors, including advanced manufacturing and clean energy. Chinese financial regulators also urged institutions to enhance support for consumption by relaxing consumer credit quotas and loan terms.
Following the U.S. Federal Reserve’s decision to maintain benchmark interest rates, the People’s Bank of China (PBOC) held its main policy rate at 1.5%, protecting the yuan from downward pressure amid tariff threats.
In the technology sector, Chinese AI firm DeepSeek launched its upgraded R2 model, a move seen as part of Beijing’s broader effort to close the innovation gap with U.S. rivals.
Despite supportive policy measures, China continued to face structural challenges, including weak consumer demand and persistent deflationary risks.
Japan
Japan’s economy presented mixed signals in March. The Nikkei 225 recorded gains of over 2%, driven by strong corporate earnings and a weaker yen, with analysts predicting further gains in the first half of the year.
However, the manufacturing sector remained under pressure, contracting for the eighth consecutive month as both output and new orders declined. The services sector also experienced a slowdown, pushing the composite PMI below the 50 threshold for the first time in five months.
Inflation remained above the central bank’s 2% target, with core consumer prices rising by 3.0% year-on-year in February. This sustained speculation about future rate hikes, although the Bank of Japan maintained steady rates in March, citing global uncertainty and domestic demand concerns.
The yen appreciated by 6% against the dollar since the start of the year, supported by expectations of further policy normalisation. However, deeply negative real interest rates continued to complicate the Bank of Japan’s policy decisions.
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Disclaimer
This Market Review is for general information only and does not constitute financial, legal, or tax advice. Data is sourced from publicly available materials including the Federal Reserve, ECB, Bank of England, Nvidia Investor Relations, and other official institutions. Past performance is not indicative of future results. Always seek personalised advice from a qualified adviser.
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