The first quarter of the year was characterised by rallies by the major stock exchanges at the global level. Despite the spread of variants of the virus and thus of the third wave of cases, the markets benefited from the progress of the vaccination campaign, which made it possible to keep the estimates of expected gross domestic product growth at the global level at +5.6% for the current year. In particular, US and European GDP growth is forecast to amount to approximately +6.5% and +4%, respectively. After the sharp decline in 2020, the main investment firms estimate a recovery of inflation in both Europe and the USA.
As for the monetary policies implemented by the central banks, the Federal Reserve reiterated its commitment to keep interest rates low until at least 2023. In Europe, Christine Lagarde announced the continuation of the pandemic emergency purchase programme (PEPP), stating that bond purchases would continue at a significantly higher rate in the upcoming quarter in order to contain an overly rapid increase in core government bond rates.
At the level of fiscal policy, in the US the American Rescue Plan Act, the huge 1.9 trillion dollars stimulus plan supported by newly elected President Biden, was approved. On 31 March, President Biden then announced a 2.25 trillion dollars, eight-year infrastructure plan, funded by an increase in the corporate tax rate from 21% to 28%. In detail, the programme includes 620 billion dollars for transportation, 650 billion dollars to initiatives aimed at improving quality of life, 580 billion dollars for U.S. manufacturing and, finally, 400 billion dollars to care for the elderly and disabled.
The document containing the goals and reforms that the countries intend to implement with the Next Generation EU funds also continued to be formulated in Eurozone countries. The due date for submitting this document to Brussels has been set as 30 April 2021. Only then, with approval by the European Council, will European resources be available to the various countries in the euro area. Italy is the main beneficiary of the European Recovery Fund, with 209 billion euros, or approximately 28% of the funds allocated by the EU, set to be received.
During the first quarter, equity markets delivered positive returns of around ten percentage points in euro for developed countries and approximately 7% in euro for emerging markets. The main contribution to performance came from value stocks, particularly in the financial and energy sectors. Technology stocks — at a structural disadvantage in an environment of rising interest rates — recorded below-average performances. During the period, ESG stocks underperformed their benchmark indices, due mainly to their nature as growth stocks. However, sustainable investments will continue to benefit from the new European Union regulations, such as the recent SFDR (Sustainable Finance Disclosure Regulation).
On bond markets, following the expectations of an increase in gross domestic product and expected rise in inflation in 2021, the quarter saw a steepening of the main international bond curves. In particular, ten-year US bonds rose from a yield of 0.91% to 1.75% and the German Bund from -0.58% to -0.33%. Spreads between European Monetary Union countries did not undergo significant changes, with the exception of the BTP-Bund spread, which went from 112 to 100 bps following the formation of the new government led by former ECB chairman Mario Draghi. Over the period, credit spreads continued to contract, reaching lows for the period due in part to the constant injection of liquidity from central banks. For example, spreads on high-yield bonds at the European level reached approximately 300 bps, whereas they had risen to 900 bps in the early months of the pandemic emergency.
On currency markets, the dollar appreciated against the euro, mainly due to greater expectations of growth in the United States. The euro-dollar exchange rate went from 1.22 to 1.17. The euro also depreciated by approximately 4% against the pound sterling, whereas it appreciated against the yen by approximately 3%. In this first part of the year, the general commodities index continued to show the uptrend that had begun in previous months. The recovery was mainly driven by the gradual recovery of economic activity following the launch of the global vaccination campaign. In particular, the index was driven by the rise in the price of oil (approximately +22%). On the other hand, gold continued its downtrend in the first three months of the year.