Current market commentary
Although the US Federal Reserve recently raised the key interest rate and held out the prospect of further interest rate increases, the market is assuming a "policy error" and is pricing in four US interest rate cuts by the end of the year. The even more restrictive monetary policy increases the probability of further turmoil, as recently seen in the banking sector, and thus also the risk of recession - not least because banks are likely to be increasingly cautious in granting loans. Consequently, gold rose strongly, while cyclical commodities and equity segments fell and the dollar depreciated against other currency pairs due to the narrowing interest rate differential. For example, the market expects ECB interest rates to be between 25 and 50bp higher by the end of the year. The Q1 reporting season, which will start soon, will show how companies are doing. It will be interesting to see how much growth stimulus China actually delivers and how companies see the outlook for the rest of the year.
After the big central bank meetings in the West, it will be pretty quiet in terms of monetary policy in this country for the next two weeks. In Japan, Kazuo Ueda officially takes over as central bank governor on 8 April from Haruhiko Kuroda, who has held the post since 2013. However, only a creeping, rather than abrupt, change of the ultra-expansive monetary policy is expected. Today, the ifo Business Climate Index (Mar) will be published. Tomorrow, the Conference Board's Consumer Confidence (Mar) in the US and Italy's Industrial Confidence (Mar) will follow. On Thursday, initial jobless claims in the US and preliminary inflation data (Mar) for Germany and Spain will be released. In France, the Netherlands and Italy they will be released on Friday. The ISM manufacturing purchasing managers' index will be released on 3 April and the services index on 5 April. Industrial production (Feb) for Germany will be published on 6 April.
Managed assets of US money market funds rise to a new record
- The assets under management of US money market funds have exceeded USD5trn for the first time as some banks face financial troubles. Investors
distrust the safety of bank deposits and their interest rates are often well below those of money market funds, which offer positive returns again even after deducting the expected 2y-inflation.
- Currently, investors are cautiously positioned. However, if concerns about the economy and the banking system subside, there would be plenty of dry powder to support the markets.