Ahead with caution
Looking ahead to May and the months ahead, DJE's strategy team believes that a higher level of caution is justified. While interest rates should not rise further, interest rate levels are likely to remain high for longer than the market expects. Moreover, the delays with which tighter monetary policy will take effect have not yet been priced in.
Calm markets await central banks
April was a fairly calm month on the stock and bond markets, which was completely different from the quite volatile previous month due to the bank quake. Many market participants acted cautiously and waited for the central banks and their interest rate decisions at the beginning of May.
Sentiment is currently supporting the stock markets: investor optimism is not too high and the seasonal rhythm is providing a tailwind. In addition, the probability of another interest rate step in the USA has decreased. Beyond that, however, there are warning signals, for example a shrinking money supply and poorer lending on the part of banks.
Bank quake lowers interest rate expectations
Until mid-March, the markets expected further large interest rate hikes by the US Federal Reserve, as overall inflation fell but core inflation rose or stagnated. With the bankruptcy of SVB and the takeover of Credit Suisse by UBS, interest rate expectations fell, which supported the stock markets in a very volatile month.
Liquidity becomes more precious
The bankruptcy of Silicon Valley Bank and the emergency takeover of the major Swiss bank Credit Suisse by its even larger rival UBS have unsettled the markets. While a broad banking crisis is unlikely, other consequences, such as for liquidity and credit, are foreseeable. DJE's banking analyst and fund manager Moritz Rehmann explains how DJE is dealing with the issue.
Interest rates likely to stay higher for longer
After a differentiated analysis of inflation and its influencing factors, we expect core inflation to remain high for the time being and interest rates at a level that is likely to remain higher for a longer period of time. The banking and insurance sectors could benefit from this.
Rising core inflation causes unrest
After the strong start to the year in January 2023, the global markets largely moved sideways overall in February. In particular, rising core inflation excluding the components of energy and food worried the stock markets because this also raised interest rate expectations again.
Buoyant start to the year
Declining inflation rates and China's departure from its "zero-covid strategy" made market participants confident on both the equity and bond markets in January.
First half year expected to be better
Lower energy prices are currently having a moderating effect on inflation, and China's departure from the zero-covid strategy is providing relief in the markets, but especially among China's major trading partners. Thus, the first half of 2023 could turn out better than many expect. However, if core inflation (excluding energy and food) does not fall as well, policy rates are also unlikely to fall as quickly as many are hoping, and the second half of the year may be worse than the first.
Unsettled end of the year
Both the stock and bond markets came under pressure again in December. Rising key interest rates in the USA and the euro area depressed prices on the stock exchanges and caused bond yields to rise further. In addition, the abrupt departure from the zero-covid strategy in China surprised the majority of market participants.
Falling inflation provides relief
The stock markets were also able to recover in November. The main source of relief was lower inflation on both sides of the Atlantic. As a result, the markets expected less aggressive interest rate hikes by the central banks.
Renewable energies with opportunities
Even though the stock markets recovered in October because inflation in the USA declined and the energy crisis in Europe eased temporarily, the global economy is likely to remain under pressure in November and the coming months. It remains important for companies to keep an eye on their cost structure. Opportunities could arise in renewable energies.
Market participants' hopes for a less aggressive monetary policy by central banks and a warm October, which caused the price of gas to drop significantly, caused stock markets in the USA and Europe to soar. In addition, the German economy did not shrink as expected in the third quarter, but expanded, which gave the DAX an additional boost.
Reduce equity risks - exploit selective opportunities
Inflation, rising interest rates, hawkish central banks and ongoing energy crisis in Europe sent the stock markets into the basement in September. In October we expect a short-term recovery on the markets.
Energy prices, inflation and rising key interest rates gripped the markets and depressed business expectations and consumer sentiment. Share prices fell across the board, while bond yields rose significantly.
Acting from the defensive
The second half of August was difficult for the stock markets. This was mainly due to the worsening of the energy crisis and the central banks' priority to fight inflation rather than growth and the labour market. We expect September to be another difficult month, especially for European equities and German government bonds.
Priority for price stability
Central banks set the tone in August: as the US Federal Reserve announced that it would prioritise price stability over growth and the labour market, market participants braced themselves for further rate hikes and stock markets in the US and Europe fell.
Companies report good figures
In July, most equity markets recovered some ground from the losses of the previous months. The recovery is likely to be primarily due to the start of the second quarter 2022 reporting season, which has so far been better than expected on both sides of the Atlantic.
Light summer freshness on the stock markets
After a first half-year marked by inflation, the threat of recession and the ongoing Russia-Ukraine war, markets recovered somewhat in July. The US equity market continues to offer the better risk-reward ratio. And profitable companies are the trump card.
Bonds - Renaissance of a currently undervalued asset class?
For years, bonds were outshone by equities. But the recent turnaround in monetary policy in the US and Europe, as well as the geopolitical situation, are weighing on equity prices. Adding to this are persistently high inflation and uncertainties with regard to the pandemic, as for example in China.