The value of the Australian Dollar increased against major foreign currencies, decreasing overseas investment returns when measured in Australian dollar terms. International and Australian fixed interest markets posted negative returns over the month due to rising yields across the majority of maturities.

The Russia-Ukraine war was ongoing throughout the month. Five rounds of peace talks were conducted between Ukrainian and Russian diplomats in March, none of which resulted in a significant de-escalation (other than brief ceasefires in local areas to facilitate civilian evacuation corridors). On 21 March, President of Ukraine, Volodymr Zelenskyy, called for direct talks with the President of Russia, Vladimir Putin, to end the war, however the request was declined and the Minister of Foreign Affairs for Russia, Sergey Lavrov, said talks would only happen when both sides were closer to reaching an agreement [1]. European leaders rejected Russia’s demand for payment of natural gas in rubles, despite being threatened with no supply. On 31 March, President Zelenskyy addressed the Australian parliament directly. The Australian Prime Minister, Scott Morrison, stated “Mr President, the people of Australia stand with Ukraine in your fight for survival. Yes, you have our prayers, but you also have our weapons, our humanitarian aid, our sanctions against those who seek to deny your freedom …”. President Zelenskyy referenced links held between Australia and Ukraine and stressed the need to hold President Putin’s regime accountable for global order [2].

On March 29, Treasurer Josh Frydenberg released the Australian Government’s Federal Budget for the financial year 1 July 2022 – 30 June 2023. The Budget came with a projected price tag of a net deficit of $78 billion as at 30 June 2023, which is approximately 3.4% of GDP. Policies targeted at individuals include: a 50% reduction in fuel excise tax (estimated to save $0.22 per litre of petrol or diesel), one-time payment of $250 to pensioners (and other eligible citizens), and a $420 increase to the low- and middle-income tax offset. Another area of focus was Defence, which will receive an increase to bring funding above 2% of GDP spending, for the first time since the ‘90s [3]. Critics of the Budget noted the lack of support for Aged Care and tangible infrastructure projects, and the short-term spending being of little use to address longer term problems with the Australian economy such as rising inflation.

Inflation in the United States rose to 7.9% year-on-year in February (as reported in March) breaking highs not seen in four decades. The reported inflation rate exceeded expectations. This is the 11^th consecutive month that the reported inflation has been higher than expectations. The US Federal Reserve (Fed) raised interest rates by 0.25% on 16 March to begin a new tightening cycle, bringing the US cash rate to 0.5%. This was the first rate hike by the Fed since 2018, and members of the Fed Board said they expect a total of at least six further rate hikes by the end of 2022 [4]. In contrast, Australia’s latest inflation figure, reported for January, is 3.5% year-on-year. The Reserve Bank of Australia met on 1 March and kept their monetary policy steady, keeping the cash rate target at 0.1%.

COVID-19 

Reported global covid19 case numbers exceeded 488 million at the end of March 2022 (an increase of 52 million in one month), with cumulative global fatalities exceeding 6.1 million at the end of the month [5]. Daily new cases of infection held steady at around 1.5 million throughout the month of March, while daily fatalities decreased steadily throughout the month to levels not seen since the pandemic began. Three of the top 20 countries (by total reported cases of infection) saw a new peak in daily cases: Germany, South Korea and Vietnam, while France and Italy saw an upswing during March.  Australia has climbed to the 22nd position out of all countries in terms of cumulative reported cases of infection.

The global vaccine rollout continued throughout February with 64.6% of the world’s population having received at least one dose by the end of the month. 11.2 billion doses have now been administered worldwide [6]. The BA.2 sublineage of the Omicron variant has been credited as likely causing the new infection waves across the globe. Early research from Denmark suggests the BA.2 sublineage is more infectious when sharing a home and English researchers found it took less time on average for someone with BA.2 to infect someone else, when compared with the original BA.1 Omicron variant [7].

Equities

All major foreign equity markets produced positive returns in the month of March, with the exception of Europe (EURO Stoxx 50 Index) which returned -0.5%. Developed markets (excluding Australia) returned 2.9% on a currency-hedged basis (and -0.9% in Australian dollar terms, reflecting the rise in the value of the Australian dollar). The best performing of the major foreign markets was Japan’s (Nikkei 225 Index) returning 5.8%. 

The Australian stock market (S&P/ASX 200 Index) generated a return of 6.9% during March, with all 11 sectors contributing positive returns. Information Technology and Energy were the standout performers, returning 13.2% and 9.6% respectively. Real Estate was the worst performing sector but still returned 1.4%.

From a foreign developed market perspective, similar to Australia, all 11 sectors produced a positive return. Energy, Materials and Utilities were the strongest performers returning 7.8%, 5.5% and 5.5% respectively. Financials and Consumer Staples were the lowest performing sectors both returning 0.7%.

Bonds

The Australian government bond yield curve shifted upwards in March. The upwards shift resulted in negative Australian fixed interest returns for the month of -3.7% (Bloomberg AusBond Composite Index). The slope of the Australian government bond yield curve was unchanged in March as the shorter end of the curve increased by the same amount as the long end of the curve. The two-year yield increased by 0.71 percentage points and the ten-year yield increased by 0.70 percentage points. The cash rate set by the RBA remained unchanged at 0.1%.

Over the month of March, major developed global government bond yield curves in general shifted upwards over all durations, with the exception of Japan. Notably, the United States’ two- year and ten-year government bond yields closed the month of March at 2.3% and 2.4% respectively.

Currencies 

The Australian Dollar appreciated against all major foreign currencies in March. The Australian Dollar increased in value against the Japanese Yen, British Pound, and the European Euro by 9.1%, 5.2% and 4.5% respectively, finishing the month at 0.7482 US Dollars, up 2.2 US cents over the month.

Commodities 

The price of WTI oil increased 4.8% and the price of Brent crude oil increased 6.9% over the month as the Russia/Ukraine military conflict continued to disrupt supply chains. The S&P GSCI Commodities index rose by 7.6% for the month of March, with the price of natural gas notably increasing 28.2%. Of the precious metals, the price of gold increased 1.5% and the price of silver increased 1.4% in March. 

Performance of key markets over relevant time periods to 31 March 2022

Asset class	Index	Month* (% change)	FYTD* (% change)	1 year* (% change)
Australian Shares	S&P/ASX 200 Acc. Index	6.9%	6.2%	15.0%
International Shares	MSCI World Ex Aust Unhedged A$	-0.9%	2.1%	11.6%
International Shares	MSCI World Ex Aust Hedged A$	2.9%	3.1%	10.9%
US Shares	S&P 500 Index	3.7%	6.5%	15.6%
UK Shares	FTSE 100 Index	1.4%	9.9%	16.1%
Japanese Shares	Nikkei 225 Index	5.8%	-1.7%	-2.8%
Australian Listed Property	S&P/ASX 200 A-REIT Index	1.2%	6.6%	17.7%
Australian Fixed Interest	Bloomberg AusBond Composite Index	-3.7%	-7.0%	-5.5%
Australian Cash	Bloomberg AusBond Bank Bill Index	0.0%	0.0%	0.0%
Currency	AUD/USD	3.0%	-0.2%	-1.5%

*Percentage changes in returns are for periods over the month of March (Month), the financial year 1 July 2021 to 31 March 2022 (FYTD) and for the year 31 March 2021 to 31 March 2022 (1 year). Past performance is not an indication of future performance.

[1] https://www.reuters.com/world/europe/putin-zelenskiy-meeting-needed-once-sides-closer-key-issues-russias-lavrov-2022-03-28/ 
[2] https://www.pm.gov.au/media/ministerial-statement-his-excellency-mr-volodymyr-zelenskyy
[3] https://budget.gov.au/
[4] https://fortune.com/2022/03/21/federal-reserve-hike-rates-faster-slow-inflation-jerome-powell/#:~:text=Bostic%20also%20said%20he%20expects,uncertainty%20currently%20surrounding%20the%20economy.
[5] https://www.worldometers.info/coronavirus/
[6] https://ourworldindata.org/covid-vaccinations/
[7] https://www.nytimes.com/article/omicron-variant-ba2.html

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