The positive trend in financial markets continued in March. This was driven on the one hand by the solid US economy and on the other by the US Federal Reserve's confirmation that it intends to cut interest rates over the course of the year. Although overall inflation showed signs of further weakening, core inflation remained at a stubbornly high level, which also underlines the resilience of the US economy. The probability of an interest rate cut by the US Federal Reserve in June is a solid 60%. Interest rate cuts amid a persistently harsh inflation outlook and record high fiscal deficits are increasingly prompting voices to call for a yield curve control in the US. Consumer sentiment remained positive, underlining the continued strong consumer momentum, even if expectations were somewhat disappointed - the Michigan Consumer Index remains at its highest level since 2021. In the eurozone, economic sentiment remained mixed, with stable employment expectations and a slight improvement in consumer sentiment, despite regional differences. The ECB maintained its monetary policy, while the SNB cut its key interest rate surprisingly early and the Bank of Japan ended its negative interest rate policy with the first rate hike since 2007. Core inflation above the 2% target and wage negotiations by the Japanese trade unions ("Shunto") are likely to have prompted the end of the negative interest rate policy somewhat earlier than expected. The trade unions achieved wage increases on a scale last seen 30 years ago. Despite the increase, real interest rates remain very negative. In Switzerland, the SNB was the first of the major central banks to cut interest rates, surprising many market observers thanks to the fall in inflation. At 1.2%, inflation is comfortably within the target range of 0% to 2%. The falling inflation figures in the eurozone should also prompt the ECB to cut interest rates in the summer. This is what the market expects.
Equity markets continued their upward trend unhindered amid low volatility. Support from central banks and the positive earnings outlook for the first quarter of 2024 underpinned this trend. According to analysts' expectations, quarterly earnings for US equities are likely to rise by 3.4% and reach 11% for the year as a whole. The IT and utilities sectors are likely to record impressive growth of over 20% in the first quarter of 2024 (see FOKUS). Analysts expect prices on the stock markets to continue to rise - although they have recently tended to underestimate the momentum on the market. Overall, the stock market closed the first quarter on a very positive note. Historically, winning streaks over the most recent five months (positive stock market months November to March) have on average indicated a high probability of further gains over the next 12 months. In terms of market performance, the frontrunner for the first quarter of 2024 is once again the Japanese stock market. It continued to benefit from a weak currency and positive changes on the part of company management and a more shareholder-friendly policy that encourages share buybacks. Markets in Europe moved into second place, led by Italy and followed by the EuroStoxx50. The Swiss stock market, on the other hand, remains without comparable dynamics.
US yields hardly changed. In the eurozone, on the other hand, yields to maturity fell by 10-20 basis points. Ten-year Swiss Confederation bonds are currently yielding less than 0.6% p.a. At over 600 days, the US yield curve (2-10 years) recorded the longest inversion period in its history. The last time there was a comparably long inversion was in the 1970s. An inverse yield curve is often a harbinger of a recession. To date, there can be no talk of a recession in the USA, but this does not mean that it may not lead to one later. For the moment, as described above, the data does not show any significant slowdown in growth. Gold and silver rose by almost 8%. The metals are assumed to have buyers in the global South. Oil and the price of copper also rose.
The probability of recession has been decreasing for some time. The Conference Board, which publishes the Leading Indicator in the US, also recently lifted its recession warning, although the Leading Index had fallen for 22 consecutive months up until February. Six of the ten sub-components of the index have shown a positive trend for the past six months, meaning that there are currently no more solid signs of a recession. So far, the global economy has coped well with the central banks' tightening cycle. The symptoms in the global economic fundamentals to date (rising default rates, loan defaults, regional banking crisis, falling real estate prices and declining consumer savings) are harbingers of a possible slowdown, which the central banks are seeking to counter with the interest rate cuts already outlined. We continue to take this environment into account with a solid diversification. We are actively seizing opportunities in structural sectors such as the energy transition, technology and the capital goods boom. Investments in bonds, gold and alternatives provide additional diversification.