Monthly Comment - March 2023
In March, financial markets faced heightened uncertainty, sparked by the bankruptcy of SVB and the sudden disappearance of Credit Suisse, leading to exceptional volatility and a flight to safer investments, causing a significant fall in bond yields. Central banks reassured markets with liquidity provision, stabilizing equities after initial declines. The banking crisis led to a reversal of forecasts on monetary policy, with expectations shifting towards easing. Equity markets initially suffered, particularly the banking sector, but recovered with the reassurance from central banks and an easing of systemic risks. Commodities continued their decline for the fifth consecutive month, exacerbated by banking disruptions and fears of recession, while precious metals rebounded towards historical highs.
In March, uncertainty in the financial markets increased sharply after a February that already hinted at the possibility of a "no landing" scenario, although it was considered unlikely. The bankruptcy of the SVB and the sudden disappearance of Credit Suisse during a high-risk week for the global banking sector had significant repercussions on most financial markets, leading to exceptional volatility. Capital flowed into more secure investments, causing a significant fall in bond yields and a new paradigm for monetary policy, which is now seen as having reached its zenith and is on the verge of an easing phase.Equity markets also suffered due to the uncertainty surrounding the stability of the financial system before eventually recovering when central banks assured the provision of liquidity. The financial markets overreacted to the risks of a crisis, resulting in exceptional situations in the equity, real estate, and commodities sectors. However, the overall scenario appears to have balanced out again, allowing for more positive developments for "risky" assets in the coming months.In the Fixed Income space, the rebound of inflation on a monthly basis and the job creation had raised uncertainties about the sustainability of the more positive regime change observed in the second half of 2022. The banking crisis and concerns about the stability of the financial system in March caused a complete reversal of forecasts on the upcoming evolution of monetary policy and a strong readjustment of expectations in the bond markets. The fall in short-term yields was brutal and completely correlated with the adjustment of expectations in Fed Fund Future, but it also proved to be very significant on longer maturities. The scores remain low, with the main risks concerning Europe and the United Kingdom, which should suffer from future upward adjustments in yields.In equities, the rapid decline of the banking sectors following the bankruptcy of SVB led to an increase in uncertainty in most other sectors, pushing markets down at the beginning of the month. Already in "risk-off" mode, they first worsened their fall before being reassured by central bank statements and the fairly rapid easing of systemic risks. The downward adjustment of yields, the probable end of monetary tightening in the United States, and a macroeconomic scenario oriented towards moderate economic slowdown should support equity markets. Risk scores have improved in this context, with Europe retaining the highest risk.Commodities continue their decline, posting negative performance for the fifth consecutive time. The trend was exacerbated by the major disruptions in the banking sector that occurred during the month of May, as well as the growing fears of recession that dragged down the energy market. The Chinese economic recovery remains a key factor in the evolution of crude demand, which still seems to be below expectations. However, the very recent announcement of production cuts by OPEC could tip the balance in the coming weeks and support crude prices. Finally, the precious metals sector saw a large rebound with prices heading towards their historical highs around $2020.
