FED and ECB are close to pivot and central bankers are confident that inflation will continue to decrease. Market participants are currently pricing between 3 and 4 cuts in the US and the Eurozone in 2024, with the first one in June.
Valuation are globally stretched: i/ Equity markets have performed very well since last October, ii/ Credit spreads have tightened a lot and iii/ Gold reached new highs…the perfect Goldilocks scenario.
The current environment is ripe for some consolidation, even some profit taking. Equity risk premium leaves no room for disappointment over consensus expectations of disinflation. Increasing duration makes sense.
Risk/return is more attractive on Fixed Income, especially quality credit, but a cautious selection should prevail.
The BOJ stance should be supportive for a recovery of the Japanese Yen, inducing a likely lesser outperformance of the equity market. Higher rates in Japan will likely reduce demand for USD and EUR denominated bonds from domestic investors.
The SNB stance should be positive for Swiss equities, especially those having large revenues abroad (especially in the US- 34% of sales for SMI companies) and is supportive for the weakening of the CHF versus EUR and USD.
Gold reached a new high in March at $ 2,220 but the traditional drivers, i.e. US Dollar, US real bond yields and investor risk aversion, fail to explain the recent surge in prices. Demand is still strong from emerging central banks, which offers support to the yellow metal. Nevertheless, booking some profit makes sense.
