March madness? After a euphoric January was followed by a somber February, with bonds and equities selling off as strong data renewed rate-hike bets, more wild swings could be next for world markets.
But if emerging signs that inflation and growth are slowing are strong enough to trigger a pause, asset prices could swing back up, with volatility in between if data signals are not clear. Data on Friday showing a key inflation U.S. gauge accelerated last month stoked rate hike bets. Some economists reckon the Federal Reserve may even opt for a big 50 bps rate increase in March after a 25 bps rise in February.
Growth stocks tracked by MSCI’s index of mainly technology companies, which do well when interest rates are low, are 1.7% lower in February. MSCI’s index of value shares, cyclical businesses offering high dividend yields that appeal when interest rates are rising, is down 2.4%. “The economic data is starting to trend back upwards again but in a longer term sense this means good news is bad news, because central banks have a lot more work to do,” said Trevor Greetham, head of multi-asset at Royal London Asset Management.
Traders price a further 150 basis points worth of European Central Bank hikes by year-end with data on Tuesday showing French inflation rose unexpectedly in February. The ECB lifted its key rate by 300 basis points since last July to 2.5%.