May 5, 2023
'Economy performing better than expected'
What is currently driving the financial markets?
As expected, the US Federal Reserve raised the key interest rate by a further 0.25 %. This means that we have now reached over 5 %. As far as further interest rate hikes are concerned, the Fed has left everything open: It would depend on the further development of the economy.
In the USA, the smouldering fire in the regional banking sector has not yet been extinguished. The Californian regional bank PacWest also recently got into difficulties. However, the decisive action taken by the government, banking regulators and the central bank gives us confidence that the situation can be brought under control. And if necessary, the large, solid US banks are also prepared to take over smaller institutions.
The corporate reporting season for the results of the first quarter of 2023 and the outlook are generally positive: the economy is performing better than expected in many places. Many large companies with corresponding market power have performed particularly well. China continues to develop positively after the 're-opening'. Consumer demand is increasing. The service sector in particular has now been able to increase further for four months. This is mainly due to consumer demand now that the restrictions due to the coronavirus pandemic have been lifted. The potential for positive impetus for the global economy as a whole remains very high.
How did the markets react?
Most of the major share indices have not shown any particularly major developments in recent weeks. However, if you take a closer look, you will notice that there are considerable divergent developments beneath the surface: The share prices of US regional banks, for example, have downright collapsed in some cases. And what is particularly interesting is that the S&P 500, the leading US index, owes most of its positive development to the performance of just a few large companies. Divergences in many areas of the markets on a scale not seen for years.
Meanwhile, the so-called 'fear barometer' VIX, an equity volatility index, is sending out relaxed signals: it has reached new lows in recent weeks, indicating optimism among market participants.
The US dollar remains weak and gold strong. Both indicate that market participants are expecting falling interest rates in the US and therefore a less restrictive policy from the US Federal Reserve. In connection with the US dollar, many are currently asking whether it will be able to maintain its supremacy for all eternity. This will almost certainly not be the case. But there are many indications that the extremely dominant position of this key currency will continue for a long time to come. Read more about this (here).
Another major issue is the dispute over the debt ceiling in the USA. The two camps of Democrats and Republicans seem miles apart. The good thing is that even though the current situation could well be somewhat explosive, there have been similar constellations in the past and a consensus and therefore a solution has always been found. The markets have never been greatly distracted by this issue.
How do we position ourselves as an active asset manager?
'Diversification' and 'quality' are currently the top priorities in all our strategies. The ongoing uncertainties in certain areas clearly speak in favor of this approach. Gold as a real asset is a stable component with further upside potential in our multi-asset strategies, and we use currency hedges in our portfolios. In the fixed-income area, we invest exclusively in high-quality bonds and also hedge the currency risk.
Point Capital Group
5. May 2023
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