2024 an average of only seven interest rate cuts are expected in the USA
After a brilliant fourth quarter, the new year began somewhat more leisurely. However, the main focus remains on the familiar topics of inflation, monetary policy and recession, framed by geopolitics. In addition, there are a number of landmark elections, starting with the election in Taiwan last weekend. The fairly unanimous market consensus continues to assume a soft landing scenario in the USA. Gradually declining inflation rates and an only gradually deteriorating labor market should give the US Federal Reserve sufficient leeway for the first interest rate cuts from March. However, the inflation and labor market data published in the USA in the first two weeks put paid to this hope. The labor market data for December was better than expected and the unemployment rate remained stable at 3.7 percent. The annual rate of consumer price inflation rose more strongly than expected in December to 3.4 percent, while the core rate fell less sharply and now stands at 3.9%. As a result, the priced-in key rate cut expectations eased again somewhat and on average "only" seven interest rate cuts of 25 bp each are expected for the USA.
Accordingly, the bond markets recorded slightly rising interest rates again at the start of the year. The ten-year German Bund is once again trading well above the two percent mark and the ten-year US Treasury bond is trending back towards four percent. Thanks to their shorter duration, euro corporate bonds with an investment grade rating recorded slightly lower price declines compared to government bonds. High-yield bonds were even able to completely decouple themselves from the negative trend of government bonds and perform positively. The bond side of the Moventum portfolios benefited from this development. After the markets had already anticipated many future interest rate cuts in the course of the fourth quarter, the portfolio duration was not increased further at the end of the quarter despite the mixed economic outlook. The shorter duration compared to the bond market therefore protected the portfolios from excessive price falls.
On the equity side, the US equities overweighted in the Moventum portfolios also performed positively from the euro investor's perspective thanks to the tailwind of a stronger US dollar. European equities, on the other hand, recorded price losses. The most notable gains were in Japan - a market that has been overweighted in the portfolios for some time. Companies there continue to benefit from the weakening yen. The emerging markets, which are now underweighted in the portfolios, continued to perform negatively, led by China. Despite the rise in interest rates, growth companies outperformed in the USA, while value stocks led the way in Europe. The overweighted healthcare sector performed significantly better than the MSCI World, which still lagged significantly in 2023. The IT segment, which continues to be overweighted, also outperformed.
The favorable equity market environment led to price gains in the equity-heavy Moventum portfolios in the past two weeks, whereas the bond-heavy strategies suffered from the rise in interest rates. However, the shorter duration and credit additions ensured outperformance. On the equity side, investors benefited from exposure to Japan and sector positioning. However, the "growth" orientation proved to be disadvantageous, particularly in Europe. Overall, the PWM portfolio trended sideways in the first two weeks (01.01.2024 - 12.01.2024) of the new year. There were mostly both positive and negative developments within all portfolio components. On the equity side, global and US strategies performed positively in line with market forecasts, while European funds fell. The picture for bond funds was similarly mixed. Strategies that tend to focus on duration suffered from the rise in interest rates, while credit-heavy funds and short-duration funds performed positively. Mixed funds and alternative strategies also saw a balance of winners and losers. However, the price of gold suffered a more significant decline as a result of the strengthening US dollar.
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