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Global equities (+3.6%) advanced for the second consecutive month, ending March with a 6.0% gain year to date. Markets continued to rise amid the accelerating global rollout of vaccines, a favorable outlook for global economic growth, and substantial liquidity support from governments and central banks. Massive stimulus measures, combined with pent-up savings and significant supply chain disruptions throughout the global economy, fueled expectations for higher inflation. That increased concerns that central banks may have to tighten monetary policy to an extent that could impair equity markets. The US Federal Reserve (Fed) maintained its dovish policy stance, signaling that interest rates are expected to remain unchanged through 2023 despite upgrades to its economic outlook. However, prominent emerging markets (EM) central banks (Brazil, Turkey, Russia) surprised markets with larger-than-expected increases in policy rates, reflecting the domestic challenges posed by higher inflation and rising US Treasury yields. Despite a broadening rollout of vaccines, global coronavirus trends remained volatile, with Europe experiencing a sharp rise in COVID-19 infections, extended lockdowns, and a slow vaccine rollout. In contrast, vaccinations in the UK accelerated sharply, and US President Joe Biden announced that America is on track to have enough vaccines for every adult by the end of May.
US equities (+4.4%) registered strong returns, with inflows into US stocks surging amid an accelerating vaccine rollout, massive fiscal stimulus, and ultra-easy monetary policy. A recent uptick in COVID-19 infections in some areas and the increasing prevalence of virus variants were overshadowed by better vaccine distribution and reopening efforts. Expectations for a robust rebound in economic growth and forecasts of higher inflation drove cyclical and value stocks to significantly outperform their growth and momentum counterparts. A sharp rise in Treasury yields poses a potential headwind for risk assets, although Fed Chair Jerome Powell reiterated his belief that inflation will not rise above the Fed’s 2% target for long enough to warrant a change in policy. The Fed anticipates that interest rates will remain close to zero through 2023. It also raised its median economic growth projection for 2021 to 6.5%, up from 4.2% in December, due to the accelerating vaccine rollout and massive fiscal stimulus. President Biden signed into law a US$1.9 trillion coronavirus relief bill and introduced an infrastructure package worth approximately US$2.3 trillion, proposing to fund the initiative largely though higher corporate taxes. The infrastructure plan…
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