04/04/2025

Market review

Growing uncertainty

The politics of US President Donald Trump are characterized by a perceived erratic approach that is causing ongoing uncertainty among all market participants. The increasing number of statements on tariffs, investments, tax and defense policy have led to a significant increase in volatility in the equity markets. It is becoming increasingly apparent that the current US administration, under the leadership of President Trump, is seeking a comprehensive restructuring of the global trade and security architecture, the exact details of which have not yet been clearly defined. 

US companies are expressing considerable uncertainty about future conditions, making it difficult for them to plan and significantly curbing investment activity. The US consumer, who has so far played a key role in supporting the US economy through his sustained consumer spending, is now significantly more pessimistic about the future. 

According to a survey by the University of Michigan, consumer sentiment has fallen to a multi-year low. In order to cope with the uncertain future, current consumption is being reduced and the savings rate increased despite higher individual incomes. General expectations of higher inflation and lower growth forecasts for the US economy could soon lead to a stagflationary environment, which would further complicate the situation. There are indications that US citizens will face inflation rates of over 3% in the foreseeable future. The current situation in the United States is proving to be less than conducive, and it appears that the President of the United States is a potential economic risk. 

Before the incoming government took office in Germany, new measures to increase investment and defense spending had already been announced. It seems likely that additional debt of around 1.5 trillion euros could be incurred in the near future. The possibility of a special fund of 500 billion euros for infrastructure and similar investments is also being discussed. 

When these figures are considered in relation to Germany’s gross domestic product (GDP) of 4.3 trillion euros, it becomes clear that debt will increase significantly in the future. At the same time, increased public investment opens up the opportunity to initiate urgently needed economic stimuli and to sustainably strengthen Germany’s long-term competitiveness as a business location. The weakening of the debt brake requires the approval of at least two-thirds of the members of the German Bundestag, which is not currently considered guaranteed. The bond market reacted promptly to the seemingly endless increase in new debt. The increase in the interest rate on the 10-year Bund from 2.5% to 2.8% represents one of the most significant daily changes in the last decade. The situation remains unchanged despite the fact that the inflation rate in Germany is close to 2% and the European Central Bank is continuously reducing interest rates. 

The current debt dynamics, which are not limited to Germany, could have the potential to boost inflation and cause interest rates to rise again. The mood among German companies brightened considerably after the announcement of the planned new debt. Although the current situation is still viewed as unfavorable, there was a positive upward revision of economic expectations. In particular, the manufacturing and construction sectors expect additional orders in the coming years. 

Interest rates set by the central banks were largely as expected, with no significant deviations from forecasts. The Federal Reserve in the United States kept interest rates stable, as forecast, but reduced the pace at which it has been shrinking its balance sheet. By contrast, the European Central Bank (ECB) again decided to lower its key interest rate. The potential for lowering key interest rates is currently characterized by uncertainties. This results from the declining price pressure, the potential US punitive tariffs and the still weak economy, which could argue for further interest rate cuts. 

On the other hand, the planned significant increase in defense and infrastructure investments in Germany and the European Union could stimulate growth and inflation. As expected, the Swiss National Bank (SNB) has also lowered its key interest rates. Furthermore, it is prepared to continue to actively participate in the foreign exchange market if necessary. The Swiss National Bank is of the opinion that the economic outlook for Switzerland has become considerably more uncertain due to the global increase in trade and geopolitical uncertainties. The Swiss National Bank is forecasting gross domestic product growth of between 1% and 1.5% for 2025.

Stock markets

In March, the situation on the equity markets required a high level of nerves on the part of investors, as almost all stock market indices worldwide, with the exception of the Chinese market, lost value. 

It is hardly surprising that the US indices recorded the largest loss, namely between 5% and 7%. General uncertainty and volatility on the US equity markets have increased, particularly affecting the technology sector and consumer goods stocks. 

European indices performed comparatively well, with only slight losses of less than 2%. 

The Swiss Market Index (SMI) performed well, with a dividend-adjusted loss of less than 2%. 

Defense stocks in Germany continue to rise significantly, while automotive stocks are falling sharply, mainly due to the threat of tariffs.

Interest rates

Yields on European government bonds rose excessively due to the planned, but significant, new debt in Germany. The lower central bank rates of the European Central Bank (ECB) stand in contrast to this and are currently close to the neutral range. 

The future development of interest rates will be significantly influenced by the upcoming tariff decisions in the United States. There was no interest rate cut in the United States in March. The Federal Reserve (Fed) is now forecasting lower economic growth but also a higher inflation rate compared to its December forecasts. It is predicted that there will be two further cuts in the key interest rate during the course of this year.

Currencies and commodities

There seems to be no limit to the price of gold. Following a brief recovery in February, the yellow metal continued its upward trend in March, reaching a new record high of over USD 3,100 per ounce. 

Due to the unstable geopolitical situation in the Middle East, the price of crude oil has increased again and is currently above 71 US dollars per barrel. 

The rise in the price of copper by almost 10% resulted from high demand and potential tariff increases. 

The euro has gained strength against most currencies, while the US dollar has significantly lost in value.

 

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