Equity markets’ returns were broadly positive in March as the Federal Reserve rushed to provide support to US bank depositors as bank stress became apparent. The value of the Australian Dollar decreased against all major foreign currencies, increasing overseas investment returns when measured in Australian dollar terms. International and Australian fixed interest markets posted positive returns as bond yields generally decreased.

On 8 March, a relatively small US cryptocurrency-focused bank, Silvergate Bank, announced it would liquidate. Two days later, Silicon Valley Bank, a US bank focused on holding deposits from tech startups, saw a rush of customers withdrawing deposits causing it to fail. Another two days later a third bank, Signature Bank, was closed by US regulators citing systemic risks. Silicon Valley Bank and Signature Bank were the second and third largest banks in US history to fail, with assets at the time of failure amounting to $209bn and $118bn respectively. Acting swiftly to prevent contagion the United States Treasury Department, Federal Reserve Board of Governors and the Federal Deposit Insurance Corporation announced measures to guarantee all depositors savings at Silicon Valley Bank and Signature Bank.

Unrelated to the US banks, Swiss bank Credit Suisse, founded in 1856, was taken over by its rival UBS at the request of the Swiss Government in order to restore confidence in the Swiss banking system.

The Board of the Reserve Bank of Australia (RBA) met on 7 March to discuss global and domestic economies and markets, and to review their monetary policy. The Board minutes stated “while it was viewed as likely that headline inflation had peaked at the end of 2022, core inflation remained too high. Members noted that the staff’s most recent forecasts were for inflation to return to the 2–3 per cent target only by mid-2025, and this was on the assumption that the cash rate is increased a little further”. The minutes further noted there were risks in both directions. On the positive were the 50-year low unemployment rate, full capacity utilisation and strong business conditions. However, the negatives include the possibility that growth could slow more than expected given very low consumer confidence and significant financial pressures on households. Nevertheless, the RBA decided to increase the target cash rate for the tenth consecutive time, by 25 basis points from 3.35% to 3.60%. On 4 April, the RBA held the cash rate at 3.6% (no increase). The Consumer Price Index (CPI) Indicator released by the Australian Bureau of Statistics for the month of February showed a year-on-year print of 6.8%.

CPI year-on-year in the US was 6.0% for the month of February. The Federal Reserve’s path to a “soft-landing” (i.e. bringing inflation to within its target range without a recession) narrowed as it grappled with its desire to hike interest rates to combat high inflation on one hand, versus increasing the risks of a financial crisis driven in part by higher interest rates. The Opening Statement from the FOMC meeting by Chairman Powell on 22 March addressed the banking sector first by stating “our banking system is sound and resilient, with strong capital and liquidity. We will continue to closely monitor conditions in the banking system and are prepared to use all of our tools as needed to keep it safe and sound”. This was followed up by a commitment to fight inflation stating, “My colleagues and I understand the hardship that high inflation is causing, and we remain strongly committed to bringing inflation back down to our 2 percent goal. Price stability is the responsibility of the Federal Reserve. Without price stability, the economy does not work for anyone. In particular, without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all”.

On the geopolitical front, Finland received approval from all NATO members and the NATO Secretary General, Jens Stoltenberg, to join the defence bloc in late March. The accession to NATO ends decades of political neutrality for Finland. Sweden’s application to join NATO remains blocked by Turkey despite both Sweden and Finland applying for membership at the same time in response to the Russian invasion of Ukraine in 2022.

Equities

Major developed foreign equity markets produced broadly positive returns in March. Developed markets (excluding Australia) returned 2.5% on a currency-hedged basis (and 3.9% in Australian dollar terms, reflecting the fall in the value of the Australian dollar). The best performing of the major foreign markets was the United States stock market (S&P 500 Index) returning 3.7%.

The Australian stock market (S&P/ASX 200 Index) was broadly flat during March returning -0.2%, with 4 out of 11 industry sectors experiencing positive returns. Materials was the standout performing sector returning 4.1%. Real Estate, Financials and Energy were the standout negative performing sectors returning -6.7%, -5.1% and -4.8% respectively.

From a foreign developed market perspective, 9 out of 11 sectors produced positive returns. Information Technology and Communication Services were the best performing sectors producing returns of 9.7% and 8.6% respectively, whilst Financials and Energy were the worst performing sectors, returning between -8.4% and -2.2% respectively.

Bonds

The Australian government bond yield curve shifted downwards in March, resulting in Australian fixed interest returns for the month of 3.2% (Bloomberg AusBond Composite Index). The slope of the Australian government bond yield curve steepened in March as the two-year yield decreased by 0.64% and the ten-year yield decreased by 0.55%.

Over March, major developed global government bond yields broadly decreased, resulting in positive returns, with the Bloomberg Global Aggregate Index (Hedged) returning 2.1%. Notably, the United States Government yields decreased 0.79% over two-year maturities. Over the ten-year term, United States Government yields fell by 0.45%.

Currencies

The Australian Dollar fell against all major foreign currencies in March. The Australian Dollar decreased 3.5% against the Swiss Franc and fell over 3% against the British Pound, Japanese Yen and Euro. The Australian Dollar finished the month at 0.6685 US Dollars, down 0.4 US cents over the month.

Commodities

Commodity prices continued to be volatile over March. The S&P GSCI Commodities index ended the month down 1.4%, with the index swinging up 2.4% and then down over 9% and then up again during the month. Notably, energy was the worst performing commodity sector falling 4.2%. The price of WTI oil and Brent oil finished down 1.8% and 4.9% respectively. Of the precious metals, the price of gold increased 7.8% and the price of silver by 15.2% in March.

Performance of key markets over relevant time periods to 31 March 2023: 

Asset class	Index	Month* (% change)	FYTD* (% change)	1 year* (% change)
Australian Shares	S&P/ASX 200 Acc. Index	-0.2%	13.6%	0.1%
International Shares	MSCI World Ex Aust Unhedged A$	3.9%	13.9%	4.3%
International Shares	MSCI World Ex Aust Hedged A$	2.5%	8.9%	-7.6%
US Shares	S&P 500 Index	3.7%	10.0%	-7.7%
UK Shares	FTSE 100 Index	-2.5%	9.5%	5.4%
Japanese Shares	Nikkei 225 Index	3.1%	8.5%	3.1%
Australian Listed Property	S&P/ASX 200 A-REIT Index	-6.8%	4.5%	-13.9%
Australian Fixed Interest	Bloomberg AusBond Composite Index	3.2%	4.3%	0.3%
Australian Cash	Bloomberg AusBond Bank Bill Index	0.3%	2.0%	2.0%
Currency	AUD/USD	-0.7%	-3.2%	-10.7%

*Percentage changes in returns are for periods over the month of March (Month), financial year to date 30 June 2022 to 31 March 2023 and the prior 12 months 31 March 2022 to 31 March 2023 (Prior 12m). Past performance is not an indication of future performance.

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