Market breadth likely to increase

At a glance

Economics

• Very soft landing for the US economy. China's growth stabilises at a comparatively low level.
• Europe: inventory correction in industry ends at the beginning of 2024, upturn from spring.
• Central banks exercise caution with interest rate turnaround: Fed, ECB and BoE will probably wait until June.

Equities

• Equity markets have continued their strength since the start of the year. US and European equities roughly on a par.
• Bubble comparisons in the US too exaggerated. Further valuation expansion in the US nevertheless limited.
• We are sticking to our balanced positioning. Small caps and broad US equity market attractive once the economy recovers.

Bonds

• Interest rate cut expectations for the Fed and ECB almost halved since the start of the year in the face of stubborn inflation.
• Increased interest rate volatility on both sides of the Atlantic continues to argue for duration close to neutral.
• High yield valuation unattractive, IG fundamentally and technically well supported. EM local currency bonds favoured.

Commodities

• Gold at new highs. Structural buyers, Fed turnaround and low positioning support gold in the medium term.
• Crude oil continues to move sideways. Supply and demand are likely to balance out in the medium term and limit upside potential.
• Brightening economic expectations and supply concerns supported industrial metals across the board.

Currencies

• Since February, the euro has made up some ground against the dollar and franc.
• Further upside potential against the strong dollar if the euro economy recovers as expected in the spring.
• Future trends dependent on interest rate policy – the ECB has signalled that it does not intend to cut rates before June.