Market activity
09. April 2024
5 minutes

The tense wait for interest rate cuts

Are they coming or not? The question is much more "when" and not "if" they will come - the long-awaited interest rate cuts. While the financial markets were still buoyed by the great interest rate euphoria in December and at the beginning of the year, the "soft landing" narrative prevailed over the course of the first quarter.

In the US in particular, the economy remains extremely robust despite persistently high interest rates. This is also reflected in inflation figures that remain above the target level, which in turn limits the US Federal Reserve's room for maneuver. The market is currently expecting three interest rate cuts in the second half of the year. In Europe, on the other hand, the economy is stuttering - both industry and the service sector are in contraction mode in Germany and France, the main drivers of growth. The ECB's monetary policy landing is not quite so soft, but at least inflationary pressure is continuing to ease. And then there is the Swiss National Bank. Somewhat surprisingly for many, the SNB was the first of the major Western central banks to cut its key interest rate by 0.25% in March. Inflation, which had already been below target for six months, provided the necessary leeway for this move.

The positive price trend continued on the stock markets. At the beginning of the quarter, the US technology giants once again dominated events. However, the first cracks are also appearing behind the shiny façade: Apple and Tesla in particular suffered price setbacks in Q1. The "Big 7" still contributed around a quarter of the total performance of the MSCI World Index. Overall, market performance is now more broadly based and sectors and stocks that are benefiting from the soft landing rather than the technology and AI boom were also able to make gains. However, sharply rising share prices with returns of up to 15% in three months combined with market volatility remaining at all-time lows are a constellation in which risk-optimized strategies are lagging behind the market, as expected. However, our two strategies Swiss Small & Mid Caps and Chinese Equities were a welcome exception: both closed the first quarter with an outperformance. In Q1, China was one of the few equity markets that stood still - despite economic policy support, the economy has not (yet) taken off.

Speaking of low market risks: Our newly launched OLZ Equity World Dynamic 0-100 fund, which manages the equity allocation on the basis of various risk indicators and trend signals, has had an equity allocation of 100% since the beginning of the year. The financial market weather is therefore currently also showing its sunny side in our dynamic model.

The bond markets have also abandoned the idea of rapid and immediate interest rate cuts. However, the yield curves shifted upwards more or less in parallel in the major currency areas in the past quarter. Even in Japan, interest rates rose (albeit only slightly). The reason for this was the first interest rate hike and the associated move away from negative interest rates by the Japanese central bank in 17 years. The market was down in Q1. The picture is different on the CHF bond market. This recorded a gain due to falling key and market interest rates (especially at the shorter end) and our fund outperformed thanks to a higher weighting in the shorter maturities.

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