Monthly report for March

The YTD return in P+ Balance was -0.5 percent at 31 March which is a 3.1 percentage points drop compared to the end of February. 

The month's portfolio returns accounted for -4.1 percent for equities, 1.5 percent for special investments, -0.9 percent for credit bonds, 0.2 for real assets and -1.0 percent for bonds. 

Based on a combination of further increased tariffs and an number of weak key indicators, we experienced a significant shift in market sentiment in March. At the beginning of the month, Donald Trump announced a further increase in tariffs against China, while the deferred tariffs against Canada and Mexico also took effect despite market speculation about a possible further delay. Even though the tariffs against Canada and Mexico were adjusted after a couple of days to exempt certain product lines, the news was received negatively by the market. The continued uncertainty about the direction of the US economic policy also resulted in a series of so-called soft key indicators (i.a. a number of indicators measuring the consumer sentiment) being somewhat weaker than expected, while the continued focus on tariffs increased fear of 'stagflation' - a scenario where growth declines, while inflation increases. This combination triggered general declines in risky assets, while the US interest rates rose as evidence of inflation concerns. 

In Europe, we experienced a more positive sentiment politically as Germany adopted a significant fiscal policy package which in some areas except certain expenses from their so-called debt brake (including a dedicated fund of EUR 500 billion for infrastructure investments and defense spending). This change in German policy could potentially result in a structural change towards higher growth in Germany, and accordingly Europe, after a number of years with the US in the driver's seat. Another consequence is that Germany will likely have to increase its debt issuance which also resulted in a significant German interest hike in March. It should be noted that Germany, contrary to a number of other countries, currently has a somewhat lower debt compared to the size of its economy which is why Germany should be able to increase the debt issuance without concerns about the sustainability of their budgets. 

Contrary to the more soft key indicators, the hard key indicators (e.g. growth, job creation and unemployment) continue to look reasonable. However, there will be some delay before the changed policies impact on the indicators, and accordingly it is not possible to assess the final effects of i.a. the tariffs until later this year. 

After a promising start to the year, market sentiment shifted significantly in March. The already announced political changes have led to great uncertainty about the direction of the US economy, and due to the importance of the US for the global economy this affects the rest of the world. Donald Trump has predicted a new announcement about general tariffs for a number of countries on 2 April which may lead to more uncertainty.