There’s no rush for rate cuts.
Central banks are getting ready to cut their key rates. Monetary policy is a little too restrictive now, especially in the States, following the decline in inflation in recent months. But as we said at the start of the year, these cuts will probably come later than investors initially expected. The world's two main central banks, the US Federal Reserve (Fed) and the European Central Bank (ECB), have been preparing investors for that possibility. At their January meetings, the Fed and the ECB hinted that rate cuts would be unlikely in the near term. With consumer price growth still hovering around 3% in early 2024, both banks have said that inflation should keep heading towards the 2% target in the medium and long term. But historically low unemployment in the US and Europe has made loosening monetary policy less urgent. It seems that the traditional link between interest rates and unemployment has been broken recently. Usually, unemployment increases when central banks raise rates, but that hasn’t happened this time. One structural factor keeping the market robust is the fact that retiring baby-boomers aren’t being replaced on the labour market. And this means that central banks can afford to take their time. That’s certainly the case for the Fed, given that the US economy continues to be surprisingly resilient. The ECB has less room for error – eurozone GDP growth has slowed sharply over the past two quarters. For once, the ECB could cut rates before the Fed, although that’s unlikely to happen before April, or perhaps even June. It could be that the Swiss National Bank catches everyone off guard before then. With annual inflation already close to 1% and the export industry weighed down by the strong Swiss franc, Thomas Jordan might announce a rate cut at the bank’s next meeting on 21 March.
Natural gas – a gradual shift towards a global market
Natural gas prices have dropped by 40% year to date and by 70% over the past 18 months. But there are still major regional differences – prices are more than three times lower in the US than they are elsewhere in the world. Unlike oil, gas is still a very local market, and export capacities are not where they need to be. But Qatar and the US are working hard to develop liquefied natural gas (LNG) production, so it’s likely that regional price differences will start to even out before the end of the decade. That’s a long time frame and it won’t resolve the current levels of overproduction, which have been further exacerbated by this year’s mild winter. To balance out the market, producers need to be more disciplined – something they are now starting to work on. Even though natural gas is key to the energy transition, prices are likely to remain highly volatile, as investors alternate between very bullish and very bearish sentiment.
This week's figure : 277bn
Nvidia’s market cap increased by a record USD 277bn after its Q4 earnings blew past even the most optimistic forecasts. This record had previously been held by Meta, whose market cap jumped by USD 204bn in one day.
Author
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Daniel Varela holds a degree in business administration with a specialisation in finance from the University of Geneva and began his career in 1989 as a fixed income manager. He joined Banque Piguet & Cie in 1999 as head of institutional asset management and with responsibility for bond analysis and management. In 2011, he became head of the investment strategy and Piguet Galland's investment department. In 2012, he joined Piguet Galland's Executive Committee as CIO.
