Market Key Points
- Rising geopolitical tensions and the closure of a major shipping lane triggered a massive surge in global energy prices.
- Persistent inflationary pressures and rising household costs compelled the central bank to raise interest rates further this month.
- Australian shares fell sharply as major industrial sectors struggled, despite a significant rally for local energy producers.
Australian equities
The S&P/ASX 200 Accumulation Index fell 7.1% in March, with eight of the 11 sectors closing lower. Materials (-13.0%), Information Technology (-12.5%) and REITs (-11.2%) led the declines. Conversely, Energy (+20.4%), Utilities (+4.9%) and Consumer Staples (+1.7%) outperformed. The S&P/ASX Small Ordinaries Index declined 11.0% in March but maintained a twelve month return of 13.7%, compared with the 11.7% rise in the S&P/ASX 200 Accumulation, as smaller companies continued to outperform large caps.
Viva Energy Group Limited (VEA) was the month's top gainer, rising 45.2% and the key beneficiary of the increased conflict in the Middle East. The timing proved ideal for VEA during the negotiation of the FSSP. Energy stocks Yancoal Australia Limited (+41.5%), Karoon Energy Limited (+33.3%) and New Hope Corporation Limited (+25.2%) all performed strongly in March.
IperionX Limited (IPX) was the worst performer for the month, down 47.8% as 1H26 losses widened and cash flows were affected by lower-than-expected reimbursements. Pantoro Gold Limited (PNR) fell 42.3%, with gold stocks caught up in a broader sell-off across March.
February's inflation rate of 3.7% eased slightly from January’s 3.8%, meeting market expectations but still exceeding the RBA’s 2-3% target. While food inflation remained steady, housing costs rose 7.2% as electricity prices surged 37.0% following the complete withdrawal of government energy rebates. This persistent data prompted the RBA to hike the cash rate by another 25 basis points to 4.10% in mid-March.
The unemployment rate rose to 4.3% in February, exceeding forecasts and reaching its highest level in several months. Total employment grew by 48,900, well above the forecast of 20,300, but this reflected a significant underlying shift, as 79,400 new part-time jobs were offset by a 30,500 decline in full-time employment. Despite the rise in joblessness, a record participation rate of 66.9% has maintained expectations that the RBA will keep policy restrictive.
Global Equities
Global equities finished March in negative territory, with developed market equities down 2.6% (MSCI World NR Index (AUD)). US equities ended the month lower, with the S&P 500 Index down 5.1%, marking its third decline in the past four months as the conflict in Iran escalated. The Energy sector gained 10.3%, as WTI and Brent crude recorded their best months since 2020, while the Utilities, Financials, and IT sectors outperformed the broader market. The Nasdaq continued to trade lower, reporting its weakest month since March 2025.
Across developed markets, Value (-5.4%) outperformed Growth (-6.0%), Quality (-7.2%) and Momentum (-7.3%). Global small caps underperformed in March, returning 4.0%.
European equity markets sold off in March, with the UK’s FTSE 100 Index falling 6.7% and Germany’s DAX Index down 10.3%. In Japan, the Nikkei 225 broke a strong start to the year, contracting 13.2%, with higher oil prices and increased importing costs putting pressure on the central bank to lift rates.
On the economic front, following the US Federal Reserve’s decision to keep interest rates unchanged again in March, officials signalled that a restrictive stance remains necessary amid rising geopolitical uncertainty. Policymakers noted that inflation risks, intensified by Middle East instability and spiking crude oil prices, make near-term rate cuts unlikely, despite a dissenting vote for an immediate reduction. Markets have further tempered expectations, now pricing in a single, delayed rate cut for the remainder of 2026.
Inflation data released in March underscored a stalling disinflationary trend, with headline CPI holding steady at 2.4% in February, while the core PCE index, the Fed’s preferred gauge, remained sticky at 3.1% year-on-year. Growth momentum weakened significantly as Q4 2025 GDP was revised down to a meagre 0.7% annualised pace, hampered by a notable deceleration in consumer spending. Additionally, the unemployment rate edged up to 4.4% in February, suggesting the labour market is cooling as the economy transitions towards sub-trend growth.
Commodity prices continued to rise in March, with the S&P Goldman Sachs Commodity Index (USD) gaining 22.0%. Oil increased by 51.3%, driven by the closure of the Strait of Hormuz as the Middle East conflict intensified. Iron ore (+3.4%) rose after a soft February, while Gold (-11.6%) and Copper (-7.8%) both finished the month weaker.
Emerging Market Equities
Emerging market equities underperformed developed markets in March, falling 9.5% (MSCI Emerging Markets Index (AUD)). In China, the CSI 300 fell 5.5% in March as the National People’s Congress signalled a shift towards "growth quality" with a moderated 4.5 5.0% GDP target, tempering hopes for aggressive, broad-based stimulus. Persistent fragility in the property sector and weaker-than-expected retail sales further dampened investor sentiment, overshadowing a modest return to expansion in manufacturing activity after the Lunar New Year.
Economic data from China showed a tentative rebound in March, with the NBS Manufacturing PMI jumping to 50.4, ending two months of holiday-induced contraction as factory activity accelerated. While services saw a festive boost, the broader non-manufacturing recovery remained uneven, constrained by a deepening downturn in property sales and investment, which fell by 13.5% and 11.1%, respectively, in the first two months.
Industrial production and retail sales data for January February, released in March, confirmed a mixed start to the year. Robust industrial output of 6.3% beat forecasts, while retail growth of 2.8% highlighted persistent weakness in household consumption. Investors remain wary of the 4.5–5.0% growth target set at the National People’s Congress, as officials prioritise high-quality development over aggressive stimulus amid ongoing deflationary pressures at the factory gate.
Property & Infrastructure
The S&P/ASX 200 A-REIT Accumulation Index fell a further 11.2% in March, lowering its rolling annual return to -2.3%. Global real estate equities performed marginally better, falling 8.3% for the month, as shown by the FTSE EPRA/NAREIT Developed NR Index (AUD Hedged). Global infrastructure fared much better, falling 2.7% in March, as measured by the S&P Global Infrastructure TR Index (AUD Hedged).
Fixed Income
Fixed income performance weakened in March as global 10-year government bond yields surged amid persistent inflation, geopolitical risks, and fiscal concerns. The U.S. 10-year Treasury yield rose 36 bps to 4.32%, while the Federal Reserve held rates steady at 3.50% to 3.75% as it balanced still-elevated inflation with signs of a softening labour market. Markets have adjusted to this restrictive environment, with volatility rising across major sovereign debt markets.
Japanese government bond yields rose 24bps over the month to close at 2.35%, even as the Bank of Japan left its short-term rate unchanged at 0.75%. European 10 year benchmark yields also climbed (Germany up 36bps to 3.01%), and UK gilts surged 69bps to 4.92%, their highest level since the 2008 financial crisis, despite the Bank of England maintaining its 3.75% base rate. German headline inflation is expected to reach 2.7% in March, heightening concerns about the regional fiscal trajectory.
Domestically, Australian 10-year yields climbed nearly 36 bps to 4.97% at month-end, driven by the RBA’s March decision to raise the cash rate to 4.10%. This rate hike contrasted with the global pause and remained a primary factor underpinning the Australian dollar’s resilience. Local market movements were also supported by a rise in consumer confidence to 91.60 points and persistent domestic price pressures.
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