The first quarter of this year was challenging for many traders after the end of 2021 when growth rates exceeded all expectations as the global economy recovered almost completely from the pandemic, then inflation began to clearly show that it would not be a temporary problem as most central banks thought. When the fed chairman change his view that inflation would not be temporary, traders began to worry about economic growth and markets feel the pressure of the beginning of the Fed's tightening policy. Adding to the challenges of this quarter is the movement of Russian troops on the Ukrainian border during February and the escalation of political tensions after the entry of Russian troops into Ukraine at the end of February, leading to many fluctuations in the markets.
All central banks began tightening policies to control inflation. Fed raised interest rates by 0.25% for the first time since 2018 and announced at the March meeting its intention to raise interest rates six times in 2022 to 2% by the end of this year. The European Central Bank ended its asset purchase program for the pandemic (PEPP) in March and announced the end of the APP asset purchase program in September 2022 increasing the expectations of September and December rate hikes to reach zero interest rate at the end of 2022. The British Central Bank was the most tightened central bank, raised interest rates in three consecutive meetings, with current interest rates reaching 0.75 percent with expectations that interest rates to be 2 percent by the end of 2022. China and Japan are taking easing policies to stimulate the economy, which is slowing down due to government policies to control the spread of the CORONA virus.
Stock markets suffered a lot of volatility during the current quarter. Firstly, due to banks resorting to tightening policies, and secondly due to the Russian-Ukrainian war. U.S. shares fell in January and February and returned to rise in March to record the first quarterly losses since the beginning of the Corona. The Dow Jones fell 4.3%, the Standard & Poor's 500 fell 4.9%, the NASDAQ fell 8.86% and the Russell 2000 index fell 8.3%. European shares also fell, Euro Stoxx 600 index falling 6.7%, the German DAX index down 9.36%, the French CAC 7.18%, and Britain's FTSE100 index rising 1.78%. Chinese shares had the hardest hit in the world stock markets, with the worst quarter since September 2015, with the Shanghai index falling 15 percent, Hong Kong's index down 7.4 percent and Japan's Nikkei down 4 percent.
The bond market suffered strong declines during the first quarter as central banks moved to tighten policies, which led to lower bond prices and higher yields significantly. US two-year yields reached 2.43%, 10-year yields 2.43%, and 30-year yields 2.51%. The yield curve inverted for the first time since 2019 indicating the possibility of a recession in the US economy over the next 18 months. German two-year yields reached -0.046% and German 10-year yields reached 0.58%. British bond yields reached 1.4% and 10-year yields were 1.65%. Japanese bond yields rose to -0.04% and the 10-year yield to 0.22% after the Governor of the Bank of Japan announced the purchase of more bonds to prevent further rises, as he believes that the 10-year yield should not exceed 0.25%. Chinese bond yields fell as a result of continued easing policy, with Chinese bond yields falling to 2.29% and 10-year yields to 2.82%.
Commodity markets were the most benefiting from current inflation and the Russian-Ukrainian war, which led to the rise of most commodities’ prices. CRB index rising about 27%, Brent crude 39%, West Texas crude 34%, natural gas up 53%, copper up 6.5%, aluminum 28%, iron ore 29%, coal up 22%. Gold also benefited during the current tensions as a safe haven, rising 5.90%, and silver also 6.40%.
The U.S. dollar index rose 2.78 percent, the euro down 2.79 percent, the pound down 2.83 percent, the yen fell by 5.65 percent, the Swiss franc down 1.18 percent, and commodity currencies rose 2.91 percent, the New Zealand dollar up 1.25 percent and the Canadian dollar rose 1.51 percent. Emerging countries' currencies benefited from higher interest rates to control inflation, such as the South African rand rose 8.25%, the Mexican peso rose 3% and the Brazilian riyal rose 15%.
Tightening policies by central banks negatively affected most cryptocurrencies during the first quarter, with Bitcoin falling 1.90%, Ethereum down 9.5%, ripple 1.93%, Polka dot 20%, and Cardano down 12%.
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