Expectation of positive rebalancing effects for US equities by end-March

Current market commentary

Germany, the global champion of fiscal prudence, unexpectedly announced a large-scale fiscal package, leading to a rise of around 45 basis points in 10-year Bund yields - the sharpest increase since reunification in 1990. The planned investment programmes in infrastructure and defence were perceived as a significant shift in German fiscal policy. The euro continued to appreciate against the US dollar. European equity markets extended their outperformance, with the financial and defence sectors benefiting in particular. In contrast, US equities continued to decline and are now in correction territory (a sell-off of more than 10% from their peak) due to political uncertainties surrounding the Trump administration and growing concerns over the US economy. In the short term, however, several factors (including rebalancing flows) point to a potential rebound. Accordingly, we tactically increased our allocation to US equities at the end of last week.

Short-term outlook

The next two weeks will be eventful both financially and geopolitically. Following the expected 25 basis point rate cut by the ECB, the Fed will meet on 19 March and the BoE on 20 March, both with interest rate decisions on the agenda. The European Council will also convene on 20 and 21 March.

Today, retail sales data (Feb.) from the US and China are due. On Thursday, the UK will release employment change (Jan.) and the ILO unemployment rate (Jan.). Next week, preliminary purchasing managers’ indices for the manufacturing and ser-vices sectors (Mar.) will be published on Monday for Germany, the Eurozone, the US, and the UK, followed by Germany’s ifo business climate index (Mar.) on Tuesday. Towards the end of the week, key UK data releases include the consumer price index (Feb.), GDP (Q4), and retail sales (Feb.), while in the US, GDP (Q4) and the Universi-ty of Michigan sentiment survey are expected.