The Month Ahead
March 2025
International equity markets were generally higher to begin February, initially shrugging off inflation concerns, while it appeared geopolitical tensions were easing. However, late in February, inflation worries exacerbated, which saw equity markets in the US and Europe retreat, while geopolitical unrest grew. Meanwhile, Asian markets were more mixed with Japan’s market underperforming, while China’s Shanghai Composite Index was on track to finish the month higher.
Down under, New Zealand markets were a little more subdued, especially leading up to the Reserve Bank of New Zealand (RBNZ) meeting, where it delivered a 50 basis point cut to the Official Cash Rate (OCR).
Looking ahead to March, several global central banks are set to meet, with the US Federal Reserve (the Fed) the key one, while in Europe, the Bank of England (BoE) and European Central Bank (ECB) also make decisions on interest rates. Breaking this down, and more, here’s ANZ Investments’ Month Ahead for March.
The Month Ahead March 2025 summary
Transcript - The Month Ahead March 2025 summary
[Note: Text on screen that is similar to voiceover is not described in this transcript]
[Text on screen: The Month Ahead March 2025, Chi-Yu Yang, Fixed Interest Analyst]
Chi: Hi I’m Chi from ANZ Investments.
How have financial markets performed in February?
Equity markets continued to perform well in February, with several share markets in the US and Europe reaching record highs. In the US, equities continued to rally on the likelihood of pro-business policies from President Donald Trump, while European markets rose after a relatively strong period of corporate earnings.
Additionally, there are hopes that the end of the war in Ukraine could be near, which would ease some geopolitical tensions across the continent.
In New Zealand, February was highlighted by the Reserve Bank of New Zealand meeting where it cut the Official Cash Rate by 50 basis points. The decision was widely expected, and in its accompanying economic projections, there weren’t too many surprises, other than the fact they expect future rate cuts to come slightly sooner than they had previously forecast.
When do we expect these rate cuts to come?
As things stand, we expect the RBNZ will cut the Official Cash Rate by 25 basis points in April, then follow it up with another 25 basis point cut in May.
However, there are definitely risks – both local and external – that could alter this path of policy easing.
And what are these risks?
Domestically, the key risk is the employment market. If the unemployment rate jumps towards five-and-a-half percent, which is above the RBNZ’s forecast peak, then we could see them be more aggressive in cutting interest rates.
Meanwhile, external factors are largely geopolitical. We are seeing a global tit-for-tat with tariffs, which are largely seen as inflationary. And if we do see a reacceleration of inflation, it will likely see global central banks slow down the pace of future rate cuts.
However, central banks could find themselves in a tricky situation as tariffs could also pose downside risks to growth, which usually coincides with monetary policy easing.
What are you watching out for in March?
More central banks meet in March, with the most important being the US Federal Reserve. While it is expected to leave interest rates unchanged, the Committee will provide forecasts for key indicators – most importantly, inflation.
Furthermore, the earlier mentioned ramifications of tariffs could also be something the Committee discusses, although, to-date, the Fed has steered away from discussing politics.
Thank you for tuning in to the Month Ahead for March.
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Fed to hold rates steady – but forward guidance will be closely watched
After cuts by the RBNZ and the Reserve Bank of Australia (RBA) in February, all eyes turn to the US this March, where the Fed is widely expected to leave the fed funds target rate unchanged at 4.25% - 4.50%.
After 100 basis points of cuts in 2024, the Fed has taken a more cautious approach on interest rates. This is largely a result of worries that inflation rates are flatlining above the Fed’s target rate, while the global tit-for-tat on tariffs could exacerbate pricing pressures – and potentially weigh on growth.
Although a rate cut is highly unlikely, the meeting is accompanied by the Summary of Economic Projections (SEP) – a quarterly update of Fed officials’ projections of key economic indicators, including interest rates, employment and inflation. And with the earlier-mentioned worries around inflation, coupled with geopolitical unrest, these updates are likely to shape the medium to long-term outlook for monetary policy.
ECB set to cut; BoE to hold steady
While the Fed is expected to leave interest rates unchanged, the ECB is set to cut its key interest rates this March, with a 25 basis point cut almost fully priced in. Nevertheless, after five cuts since June of last year, there are signs that a pause might be on the horizon. ECB board member Isabel Schnabel recently made comments that rates are no longer restrictive and added that energy prices could pose upside risks to inflation.
Meanwhile, the BoE is set to leave its key interest rate unchanged. The central bank there finds itself in a bit of a bind, where growth remains tepid, but inflation, notably wage inflation, remains uncomfortably high and is not showing any signs of slowing. According to the Office for National Statistics (ONS), average earnings for regular wages, excluding bonuses, rose 5.9% on an annual basis for the period October to December 2024.
New Zealand Q4 2024 GDP data – has the economy bottomed?
At a domestic level, key economic data this month centres on the Q4 2024 GDP (gross domestic product) report. After a worse-than-expected Q3 result, hopes are that the economy is starting to climb its way out of recession.
At a sector level, construction continues to struggle, feeling the pinch of higher interest rates. However, hopes are that the sector is starting to benefit from the interest rate cuts over the past several months.
We remain neutral – assessing several risks
At a tactical level, we began 2025 on a similar note to the latter part of 2024, maintaining neutral positions across global equities, global bonds and domestic bonds. Our neutral position across global equities reflects several competing narratives. On the one hand, equity market valuations are stretched, while momentum indicators continue to suggest there could be further upside. In fixed interest markets, we feel global bonds are fairly priced at current levels, given the balance of mixed economic data, labour market strength and a likely moderation in US rate cuts.
Moreover, we are seeing a global tit-for-tat on tariffs, which could pose upside risks to inflation, while on the other hand, they could also weigh on global growth.
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Important information
This information is issued by ANZ Bank New Zealand Limited (ANZ). The information is current as at 21 February 2025, and is subject to change.
This document is for information purposes only and is not to be construed as advice. Although all the information in this document is obtained in good faith from sources believed to be reliable, no representation of warranty, express or implied is made as to its accuracy, completeness or suitability for your intended use. To the extent permitted by law, ANZ does not accept any responsibility or liability for any direct or indirect loss or damage arising from your use of this information.
Past performance is not indicative of future performance. The actual performance any given investor realises will depend on many things, is not guaranteed, and may be negative as well as positive.