2G Certificates Update April 2023

The month of March was marked by high volatility due to regional bank failures in the United States and the forced takeover of Credit Suisse by the UBS Group. Although there is still much uncertainty regarding the health of the banking system and central bank responses, markets were resilient with equities regaining ground and closing the quarter on a positive note. The S&P500 index closed the month at +3.7% (+7.5% Q1), the Nasdaq 100 technology index at +9.5% (+20.8 % Q1), the European Eurostoxx 50 index at +1.81% (+13.74% Q1), and the EUR/USD at +2.49% (1.25% Q1). The 2-year U.S. Treasury yield fell from its high of 5.08% to a low of 3.55% to close the month at 4.03%. Precious metals in general closed the month higher, with spot gold and silver at +7.8% and +15.2% respectively.
Banking turmoil shook the interest rate market, which until the first half of the month was discounting a rate hike to 5.25% and no rate cuts during the year. The situation then reversed, with markets now estimating a terminal rate at 5% and rate cuts expected as early as July. Nevertheless, the Federal Reserve warned that the battle against rising inflation is far from over, making the decision for a 25 basis point increase at its last meeting. Growth stocks performed the best during the month (+4.53% compared to value stocks).
Financial stress has brought greater difficulty in managing the fight against inflation for regulators
regulators who now aim to balance the tensions between price stability and financial stability. According to Powell and Yellen, the banking system is sound, especially with the new lending program, called the Bank Term Funding Program (BTFP), to provide additional liquidity to financial institutions to help them meet the needs of their depositors. Banks quickly took advantage of the program, topping $150 billion in loans. Although full utilization of the program is unlikely, up to $2 trillion could be injected into the financial system, according to Bloomberg analysts.
In macroeconomic terms, the labour market still appears to be resilient, adding 311k new jobs, up from the 225k expected. The unemployment rate rose to 3.6%, up from 3.4% expected and 3.4% previous. the labour force participation rate increased by 0.1 percentage point from the previous figure to 62.5%. Hourly wages increased by 4.6%. The economy, in terms of GDP, grew 2.6% in the fourth quarter of 2022, down from 3.2% in the third quarter, reflecting a decline in exports and a deceleration in overall spending. Consumer prices (CPI) rose 0.40% on a monthly basis, in line with expectations and less than the previous figure of 0.50%. On an annual basis, however, prices rose 6.0%, still in line with analysts’ estimates and less than the previous 6.4% growth. The figure turns out to be the eighth consecutive monthly decline and may continue its descent reflecting the recently slowed rental and house price data, which flow into the index with a lag and weigh in at about 70%.
The second quarter is likely to see further upward pressure on interest rates from the Fed, with the possibility of cuts during the year. Banking tensions could lead to a further tightening of lending standards that would cause a slowdown in economic growth, especially in more developed economies.

We continue to monitor the situation closely, preferring high-quality stocks within equity allocations.

We remain firmly invested in the following sectors.

Megatrends – Aerospace & Defense – Semiconductor – Communication Service – Building Products – Materials – Utilities – Banks – Diversified Financial – Food , Beverage & Tobacco – Hotels Restaurants & Leisure – Nasdaq Selection 10

Confident that we have well-weighed and chosen individual stocks, trying to balance sectors and investment timing well assisted by our Artificial Intelligence market screening system.

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