The markets are still confident that the central banks will relax monetary policy significantly this year. However, there are still major challenges to overcome in light of faltering efforts to cut inflation, particularly in the USA.
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Market overview: Equity markets remain optimistic
Although monetary policy doesn’t look likely to be relaxed until the second half of 2024, the equity markets remain optimistic thanks to the strong reporting season and AI boom. Neither fears over recession in the eurozone nor persisting concerns over inflation in the USA could dampen the mood.
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Indexed performance of government bonds in Swiss francs
100 = 01.01.2024
At the end of 2023, market expectations over the central banks’ future monetary policy were extremely optimistic. Cuts to policy rates of up to 1.5 percentage points were being forecast until the end of 2023. This optimistic outlook has been tempered slightly in the meantime. The markets now anticipate that policy rates will fall by around 0.75 percentage points by the end of the year. However, even these projections seem too optimistic. In the USA in particular, making further progress on reining in inflation appears challenging, as the economy continues to perform robustly. However, this has not deterred the bond markets. Government bonds generally trended sideways month-on-month. However, foreign bonds made a positive contribution to Swiss investors’ portfolios due to the weak Swiss franc.
Trend in 10-year yields to maturity
In percent
There was little overall change to long-term interest rates last month. In February, 10-year yields to maturity on government bonds were still trending upwards, but they fell again in early March. Interest rates still stand at 4.1 percent in the USA. In contrast, yields to maturity on 10-year Swiss government bonds fell considerably. After climbing to over 0.8 percent in early February, they now stand at slightly over 0.6 percent.
Credit spreads on corporate bonds
In percentage points
The credit spreads on corporate bonds narrowed again last month. Low-quality corporate bonds fell most sharply. This means that risk premiums remain at a low level. There is little sign of an impending recession.
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Thanks to the persisting boom in artificial intelligence and the strong reporting season, most equity markets made gains. Fears of recession in the eurozone and ongoing concerns over inflation in the USA were largely pushed aside.
Indexed stock market performance in Swiss francs
100 = 01.01.2024
The equity markets continued their upward trend last month. Equity prices actually hit new all-time highs in the USA. The last quarter’s strong reporting season and tech prices boosted by the boom in artificial intelligence made a major contribution. The Japanese equity market performed extremely strongly again last month and is up by over 16 percent since year-opening. The weak Japanese yen is a key factor in this, enabling Japan’s export-oriented economy to benefit from a weak domestic currency. By contrast, the Swiss market performed weakly again and was set back by the poor performance of Nestlé, the index heavyweight. The food group’s share price fell by over 6 percent last month, weighing on the price performance of the entire Swiss equity market.
Momentum of individual markets
In percent
The general rise in equity prices also boosted momentum on most equity markets, which now lies in positive territory almost across the board. Upward impetus remains strong on the tech-heavy stock markets, such as the Netherlands, USA and Taiwan. Momentum on the Chinese equity market returned to positive territory recently. However, this may be a momentary development rather than a lasting trend.
Price/earnings ratio
The price/earnings (P/E) ratio on the equity markets rose again on a broad front last month. Above all, the P/E ratio improved in the USA and emerging markets, while Switzerland saw a more moderate rise. This development mainly reflects the price trend. Equity prices in the USA and emerging markets climbed much more sharply than in Switzerland last month.
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The upturn in Swiss real estate investments continued last month. In addition to lower capital market interest rates in Switzerland, impetus has also been provided over recent months in particular by greater leeway for rent rises, which was permitted by a higher reference interest rate.
Indexed performance of Swiss real estate funds
100 = 01.01.2024
Exchange-listed Swiss real estate funds gained again last month, continuing their upward trend that has lasted since November 2023. The strong growth in value was achieved against a backdrop of a sharp drop in capital market interest rates. Yields to maturity on 10-year Swiss federal bonds fell sharply in February and now stand at just over 0.6 percent. The additional leeway for raising rent provided by the increase in the reference interest rate is having a positive effect on yield prospects. This may also have spurred on price performance.
Premium on Swiss real estate funds and 10-year yields to maturity
In percent
The premium paid by investors on exchange-listed real estate funds compared with the properties’ net asset value has risen considerably over recent months and now stands at around 25 percent. As the NAV of many properties has barely changed over recent months and years, despite a much higher level of interest than in the period 2015 to 2021, the recent increase is mainly due to the rise in the value of the real estate funds.
Three-month SARON and 10-year yields to maturity
In percent
The yields to maturity on 10-year Swiss government bonds decreased again last month and are now well below the 1-percent mark again. This means the extraordinary negative difference between the long-term and short-term interest rate level has widened again. However, in light of the low rate of inflation and weak economy in Switzerland, many market participants expect the Swiss National Bank (SNB) to cut its policy rate soon. The futures market is factoring in a much lower short-term interest rate until the end of the year.
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Currencies
The Swiss franc’s phase of weakness observed since year-opening is continuing. However, in view of much lower inflation by international comparison, the Swiss franc may return to its appreciation trend over the medium and long term.
Currency pair Price PPP Neutral range Valuation Currency pair EUR/CHFPrice 0.96PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance. 0.89Neutral range Range of historically normal fluctuations. 0.82 – 0.96Valuation Euro neutralCurrency pair USD/CHFPrice 0.88PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance. 0.79Neutral range Range of historically normal fluctuations. 0.69 – 0.89Valuation USD neutralCurrency pair GBP/CHFPrice 1.12PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance. 1.21Neutral range Range of historically normal fluctuations. 1.04 – 1.37Valuation Pound sterling neutralCurrency pair JPY/CHFPrice 0.59PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance. 0.92Neutral range Range of historically normal fluctuations. 0.76 – 1.07Valuation Yen undervaluedCurrency pair SEK/CHFPrice 8.56PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance. 9.78Neutral range Range of historically normal fluctuations. 8.77 – 10.78Valuation Krona undervaluedCurrency pair NOK/CHFPrice 8.40PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance. 10.60Neutral range Range of historically normal fluctuations. 9.41 – 11.78Valuation Krone undervaluedCurrency pair EUR/USDPrice 1.08PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance. 1.13Neutral range Range of historically normal fluctuations. 0.98 – 1.27Valuation Euro neutralCurrency pair USD/JPYPrice 150.12PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance. 86.61Neutral range Range of historically normal fluctuations. 67.73 – 105.49Valuation Yen undervaluedCurrency pair USD/CNYPrice 7.20PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance. 6.04Neutral range Range of historically normal fluctuations. 5.61 – 6.46Valuation Renminbi undervaluedSource: Web Financial Group
After a strong end to 2023, the Swiss franc has weakened over the first few months of the new year. Since January, it has fallen by almost 3 percent against the euro and by 4.5 percent against the US dollar. In February, the Swiss franc was the worst performing G10 currency. However, this weakening may not represent a lasting trend. Much lower inflation by international comparison is likely to see the Swiss currency strengthen again in the near future.
The US dollar has performed much more robustly so far in the new year. The US currency has gained by around 2.5 percent on a trade-weighted basis since early January. Of the G10 currencies, only the Swedish krona performed more strongly over this period. The Swedish krona also looks likely to make further ground. Despite its recent gains, it is still heavily undervalued in terms of purchasing power parity.
Cryptocurrencies
Cryptocurrency Rate YTD in USD High of the year Low of the year Cryptocurrency BITCOINRate 66'120,00YTD Year-to-date: since the start of the year in USD 57,11%High of the year 68'359,00Low of the year 39'528,00Cryptocurrency ETHEREUMRate 3'812,46YTD Year-to-date: since the start of the year in USD 66,01%High of the year 3'812,46Low of the year 2'207,26Source: Web Financial Group, Coin Metrics Inc.
Gold
The precious metal is on an upward trend and close to a new all-time high. Several central banks in emerging markets also appear to be playing a key role in this.
Indexed performance of gold in Swiss francs
100 = 01.01.2024
The gold price was extremely stable in the first two months of 2024, before seeing a sharp upturn in early March. The price per troy ounce now stands at just short of its record high of 2,135 US dollars. Various reasons explain the precious metal’s popularity. In addition to various geopolitical conflicts, which have led more people to seek secure investments, efforts by several central banks in emerging markets to make their monetary policy more independent of the US dollar have also led to strong demand. Last year, the World Gold Council (WGC), the industry organization, recorded the second strongest year in terms of gold acquisition by central banks.