Scope for the US Federal Reserve to cut interest rates
Despite all political uncertainties, the stock and bond markets showed a positive trend. In particular, there is increasing hope in the USA for an imminent first interest rate cut by the US Federal Reserve (Fed). Recent labor market figures and inflation data point in this direction. The ongoing mild cooling in the labor market should provide the Fed with enough leeway for a first rate cut. There were also encouraging news from the inflation front. Data for the month of June once again exceeded expectations, and the disinflation trend appears to be intact.
In the Eurozone, however, core inflation remained at 2.9 percent against expectations, particularly due to persistent service inflation. Although further rate cuts by the European Central Bank (ECB) are generally expected by the market, a comprehensive rate cut cycle is currently not under discussion. In this environment, the yield on German Bunds fell by around 10 basis points to around 2.50 percent at the end of the week. The declines were more pronounced outside Germany after the feared victory of Marine Le Pen's party did not materialize in the second round of parliamentary elections in France.
Hopes for imminent rate cuts led to a nearly 30 basis point drop in the yield on 10-year US Treasuries to around 4.18 percent, resulting in significant price gains for US bonds. Corporate bonds with investment-grade and high-yield ratings could not fully keep up with the strong movement in government bonds due to their lower interest rate sensitivity. In this very favorable market environment for bonds, the bond side of the Moventum portfolios also showed clear gains. However, due to their shorter duration positioning and stronger credit focus, the performance was not as dynamic as in the broader bond market.
Stock markets also gained thanks to the interest rate cut expectations. The Japanese stock market performed the best, followed by Europe. From the perspective of Euro investors, the US stock market suffered from a weaker US dollar and therefore only posted slight gains in euro terms. The overweighting of Europe initiated at the beginning of the quarter thus paid off. Engagements in Emerging Markets also contributed positively to portfolio performance. Additionally, the portfolios benefited from the inclusion of European small caps, which were newly added at the beginning of the quarter and outperformed during the reporting period. The slightly stronger focus on the value segment in Europe also paid off, while in the USA, growth stocks continued to lead. At the sector level, negative contributions came from the overweighting of the energy sector and underweighting in the consumer cyclicals sector, while the continued high weighting in the technology sector was advantageous.
The positive development in the stock and bond markets over the past two weeks also benefited the Moventum portfolios, all of which recorded gains. However, due to their shorter duration positioning, the bond side could not fully keep up with the positive interest rate environment. On the equity side, the overall sector positioning had rather negative effects, which could only be partially compensated by the positive impulses (European value funds and small cap engagements).
This generally favorable market environment also led to adequate gains across the board in the PWM Portfolio over the past two weeks. Almost all portfolio components developed positively. Within the alternatives, only the hedging fund Aquantum Active Range showed a negative development as expected. Mixed funds, bond funds, and almost all equity funds benefited from the favorable market conditions. Among the bond funds, the more duration-heavy products, such as BayernInvest and BlueBay, showed more significant gains. Within the equity funds, value strategies were particularly convincing. The increase in the gold price was particularly pronounced, benefiting HANSAgold.
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