Low market breadth as a warning signal

At a glance

Economics

• US: Bank quake and higher financing costs send US economy into mild recession. Recovery 2024.
• Europe: Consumer purchasing power recovers, but headwinds for industry from abroad. Hardly any growth in 2H 2023.
• Inflation declining, rate peak almost reached. Fed cuts rates from end 2023; ECB tightens further, its rates remain high in 2024

Equities

• Equities in May with performance heterogeneity. Stabilising earnings expectations and AI hype are supporting.
• Under the surface, investors act more sceptically. Low market breadth and falling net liquidity as risks.
• We maintain our balanced, non-offensive positioning with a moderate underweight in equities.
  

Bonds

• Government bond yields in sideways trend. Preference for covered bonds over pure government bonds.
• Financial bonds were only able to shake off the bank worries temporarily. However, we expect catch-up potential.
• We have continued to increase bonds and duration across segments and are now positioned close to neutral.

Commodities

• Gold burdened by real interest rate and USD strength after leap towards all-time high. Potential limited without interest rate pivot.
• Crude oil prices decoupled from fundamentals. Demand potential in China and services sector with supply still tight.
• Industrial metals suffer from sluggish economic recovery in China. Long-term upward trend intact.

Currencies

• EUR/USD back at 1.07. In the short term, the euro is facing headwinds. However, it should rise again in the course of the year.
• The pound has strengthened further. Monetary policy is providing tailwinds. EUR/GBP falls back to 0.86.
• Nothing new with the franc: The Swiss currency remains very strong. EUR/CHF is trading at 0.97, well below parity.