Global Asset Allocation Team Market Update – March 2022

Global equity markets were whipsawed in February and the MSCI All Country World slipped -2.7%. Not surprisingly, emerging market equities underperformed their developed market peers, with notable weakness stemming from emerging Europe. Meanwhile, speculation that the conflict will amplify inflation dynamics and fuel an aggressive pace of Federal Reserve monetary policy tightening pushed the S&P 500 into correction terrain, while international developed stocks also stumbled lower. By contrast, the S&P/TSX held firm and handily outperformed its global peers, thanks to robust returns in the heavyweight resource (energy, materials) sectors. 

Fixed income markets also generated negative results in February. Yield curves flattened in a bearish fashion, with short-term yields rising by more than their long-term counterparts on wagers that aggressive policy normalization in response to a four-decade high in US inflation will slow the recovery. The two-year treasury yield rose 25 basis points to 1.43%, while the ten-year yield rose by a more modest 5 basis points to 1.83%. Similar moves were seen in Canada, with the two-year government bond yield rising 16 basis points to 1.44%, while the ten-year yield rose by 4 basis points to 1.81%. Meanwhile, credit spreads widened substantially as risk aversion took hold, and government bonds outperformed their corporate peers. For the month, the Barclays US Aggregate Bond index declined -1.1%, while the FTSE Canadian Bond Universe lost -0.7%. 

The US dollar advanced as the deterioration in risk appetite saw investors flock to the safe haven currency. The Canadian dollar managed to strengthen against a boisterous greenback, with surging oil prices underpinning the loonie. By contrast, both the euro and the pound weakened as investors scaled back their wagers for rate hikes from both the European Central Bank and the Bank of England. 

Finally, commodity prices rallied the most since 2009 as traders contemplated the fraught geopolitical landscape and an array of supply risks triggered by Russia’s invasion of Ukraine, which threatens key supplies of energy, crops, and metals. Crude oil soared higher on fears of curtailed supplies from the world’s second biggest crude exporter, which comes at a time when the global oil market was already extremely tight. Agricultural markets also performed strongly, with wheat and soybean prices rising by double-digits. Meanwhile, gold capped its biggest monthly gain since last May as the raft of penalties against Russia raised concerns over the impact on global growth and boosted demand for the safe haven metal. 

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