Equity markets with widening valuations and new all-time highs

At a glance

Economics

• US economy more robust than expected, soft landing ahead. China is slowly stabilising.
  
• Europe: Economy at low point, inventory correction in industry ends at the beginning of 2024, upturn from Easter.
• Inflation continues to fall, interest rate turnaround approaches: Fed, ECB and BoE cut interest rates from Q2.

Equities

• Equities with new all-time highs after bumpy start to the year. Market breadth remains low and large caps continue to dominate.
• Soft landing scenario remains market consensus. High investor positioning limits upside potential.
• We continue to feel comfortable with our balanced positioning. Small caps more attractive again as the economy recovers.

Bonds

• Yields on safe government bonds have risen since the beginning of the year in the face of hawkish central banks.
• Increased interest rate volatility on both sides of the Atlantic continues to argue for duration close to neutral.
• High yield valuation increasingly unattractive, IG fundamentally well positioned. EM local currency bonds favoured.

Commodities

• Gold remains robust despite the decline in interest rate optimism and continues to offer an attractive addition to the portfolio.
• Crude oil rose due to the attacks by the Houthi rebels, but the potential is limited due to sufficient supply.
• Chinese stimulus measures support industrial metal prices, rising industrial activity could provide a tailwind.

Currencies

• EUR/USD: Recently dollar strength rather than euro weakness thanks to robust US economy.
• EUR/CHF: Slightly stronger since the beginning of the year, but no real trend reversal yet.
• Future trends dependent on interest rate policy – European Central Bank sends very mixed signals.