Current Environment - Macro Overview

  April 12, 2016

Equity markets rebounded in March as rate hike fears eased and healthy domestic economic data revealed consistent conditions, resulting in a resounding turnaround from the market lows experienced in February.

The concern of a rapid rate increase by the Federal Reserve subsided towards the end of the 1st quarter, as Fed Chairperson Janet Yellen helped tame prior remarks made by fellow Federal Reserve members. Subdued inflation and economic growth expectations led the Fed to curtail its stance on predetermined rate hikes. The Fed identified “global economic and financial developments continue to pose risks”.

Some analysts believe that oil may have found a bottom around $26 per barrel in the first quarter, alleviating fears of a further oil price drop. Oil prices recovered in March from persistent lows earlier in the year. Easing rate hike concerns led to the dollar’s derailment from its uptrend during the quarter, creating opportunities for additional exports, as American made products become less expensive for international buyers.

A new acronym arose from international central banks lowering rates to negative territories, NIPR (Negative Interest Rate Policy).  The Bank of Japan adopted negative interest rates in January and lowered key lending rates to below 0%, nearly a year and a half after the European Central Bank became the first major institution of its kind to venture below zero. Other countries meandering into the negative arena include Switzerland, Denmark and Sweden.

The ECB ramped up its economic stimulus efforts in Europe by increasing its bond purchases from 60 billion euros to 80 billion euros per month. In addition, the central bank will be buying both government bonds and investment grade corporate bonds. Markets welcomed the strategy of venturing into the corporate realm, sending bond prices higher due to a limited supply of the debt.

Sources: Fed, Dept. of Labor, Eurostat, ECB

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