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- [00:02]
A
Good morning, everyone, and welcome to Julius Baer's Moving Markets podcast. It's Wednesday, the 1st of April, and my name is Helen Frear. I'll be speaking first of all this morning to my colleague Lucia Caculovic, who has a roundup of what's happening in financial markets for us. Then I'll be talking to Dario Messi for an update on bond markets and then sharing his thoughts on the latest moves in equity markets. I'll speak lastly to Matthia Rashita. So, plenty coming up, but as usual, let's start with the market news. Good morning, Lucia.
- [00:36]
B
Good morning, Helen.
- [00:38]
A
So, yesterday saw a bit of a rebound in European equities, but March proved to be a pretty punishing month overall. Can you give us a few of the details, Lucia, on how things played out?
- [00:50]
B
Yeah, so we did see the stock 600 climb nearly half a percent yesterday, with most major markets finishing in positive territory. That was a welcome sight after a shaky start to the day. However, let's keep it in perspective. Despite that bounce, March ended with our nearly 8% decline for the Stoxx 600, its worst monthly performance in over three years. It really highlights the persistent anxieties surrounding the situation in the Middle East.
- [01:21]
A
Yeah, and speaking of anxiety, inflation numbers out of the eurozone yesterday didn't exactly soothe nerves, did they?
- [01:29]
B
No, they certainly didn't. Preliminary figures show Eurozone inflation jumping to 2.5% in March, significantly exceeding the ECB's 2% target. Now, this jump was primarily fueled by rising global energy prices, directly linked to the geopolitical tensions.
- [01:48]
A
All right, and now moving on to the US we saw a surprisingly strong rally yesterday with the dow leaping over 1,100 points, up 2.5%. The S&P 500 was up 2.9% and the Nasdaq Composite up 3.8%. So what were the drivers here of this dramatic turnaround?
- [02:09]
B
Well, optimism regarding a potential easing of tensions in the Middle east was the primary catalyst. Reports surfaced suggesting that the Iranian president might be open to ending the conflict with certain guarantees. Also, reports that President Trump was willing to consider ending hostilities, even with disruptions to the Strait of Hormuz gave markets a boost. Now, tech stocks particularly benefited, and giants like Nvidia and Microsoft saw substantial increases. The max 7 were up 4.5%. However, it's important to remember that despite yesterday's gains, the NASDAQ is still firmly in correction territory, down over 10% from its recent highs.
- [02:54]
A
Right. Let's also touch on yesterday's macroeconomic data. We saw some mixed Signals coming out of the US Yesterday.
- [03:02]
B
Yes, that's right, Helen. So, consumer confidence unexpectedly ticked upwards in March, but simultaneously, job openings fell sharply and hiring slowed considerably. Households expressed growing concern about the labor market and anticipated higher inflation. These conflicting indicators suggest a complex economic environment.
- [03:27]
A
So March was a volatile month overall. Right. How did different asset classes fare over the month?
- [03:34]
B
Well, as you said, very volatile. Equities suffered. As we discussed, bond markets weren't immune either. US high yield bonds recorded the first quarterly loss since 2022, down around 1.1%. Interestingly, much of that weakness isn't necessarily tied to deteriorating credit quality, but rather to rising treasury yields and concerns about disruption within the tech sector, specifically related to AI Energy. Bonds, however, bug the trend. Benefiting from the surge in oil prices. Now, gold, traditionally seen as a safe haven, actually experienced its largest monthly decline in almost 17 years. Surging oil and gas prices raised expectations of interest rate hikes, diminishing gold's appeal.
- [04:23]
A
Let's talk a bit more about commodities. Oil prices have been fluctuating quite dramatically. Where do things stand at the moment?
- [04:32]
B
Yeah, so the May contract for Brent was settling about 5% higher yesterday, trading above US$118. WTI, however, saw a slight dip yesterday, but both are up this morning. And this is mainly because there are some contradicting signals coming in. We see escalating attacks, while the rhetoric suggests we could see an end soon.
- [04:57]
A
And turning to corporate news now, Unilever made quite a big announcement yesterday.
- [05:02]
B
Yes. So the company is in Advanced talks with McCormick to potentially merge its food business with the US spice maker. The deal, which is valued at around 15.7 billion US doll in cash, plus a significant equity stake for Unilever shareholders, could reshape the consumer goods landscape. However, the market reacted negatively, with Unilever's shares closing down over 7% yesterday. Also interesting to note here, the company has implemented a global hiring pause, citing significant challenges stemming from the Middle east conflict.
- [05:41]
A
Okay, and moving on to today's market action, I see stock markets in Asia are enjoying a strong rally. Japanese shares are up nearly 5%, but South Korea's Kospi is really leading the charge, up almost 10% when I last checked.
- [05:56]
B
That's quite a jump indeed, Helen. So Asian markets are definitely painting a brighter picture this morning. We also received some notable data overnight. The bank of Japan's Tankan survey for the first quarter of 2026 revealed increase optimism amongst large Japanese manufacturers. That's a positive signal for the economy. However, the news wasn't uniformly upbeat. According to the rating dog PMI Chinese manufacturing activity cooled somewhat in March, registering at 50.8, which missed expectations.
- [06:34]
A
And looking to the day ahead, what key data releases should investors be paying attention to today?
- [06:40]
B
So today we'll get manufacturing PMIs from several European countries alongside the Eurozone unemployment rate in the afternoon from the US we have ADP employment figures, retail sales data and the ISM manufacturing pmi. Now Helen, as for US stock futures, they were trading higher when I last checked. So let's see what the first day of April has in store for us.
- [07:05]
A
Very good. Thank you very much Lucia. Great to speak to you again today.
- [07:09]
B
Thanks for having me.
- [07:14]
A
Now let's look more closely at the fixed income space and for that I am joined by Dario Messi. Good morning, Darien.
- [07:21]
C
Hello.
- [07:22]
D
Good morning, Helen.
- [07:23]
A
The last few times we've talked extensively about central banks and rate expectations. Now for a change, today let's talk about corporate credit markets. How are these markets holding up in the difficult environment environment we have at the moment?
- [07:39]
D
Yeah, well, I mean first of all we heard it before from Lucia. Also the pond market was not very moon the first quarter. But at the end, if I look at it more broadly or if I take a step back, I would say the corporate bond market still pretty well behaved actually. So if you look at corporate spreads, yes, they widened a bit over the last couple of weeks, but historically we are still at rather tight levels. In fact, I would argue the corporate bond market does not really discount here major adverse economic outcomes from here. So with default rates still expected to remain low or even fall further, I would assume this is supported by the fact that fundamentals, so credit metrics, they are actually still quite solid on average. And also the quality of public corporate bond markets improved, especially if you look at the hill space where you would look first to see any kind of stress. So in summary, I think the corporate bond market seems actually pretty calm when
- [08:46]
A
looking at spreads and spreads are low. Are there any other signals that you monitor to gauge the stress in the market?
- [08:54]
D
Yeah, what I typically also look at is that the market access. So primary markets. So how is issuance activity holding up? Have corporates still open access to finance to refinance? This is at the end the ultimate test to see if we have a more serious problem in the bond market or in the corporate bond market. It's exactly when capital is not accessible anymore and we are very much or really far from such an environment. In fact, when you look at the primary market activity for investment grade corporates, year to date we are at record volumes so the only thing where we see a bit deteriorating appetite maybe is especially also for longer date bonds or riskier segments like high yield or emerging markets. This is in the fund flow data over the last couple of weeks and that's mostly tracking retail and sentiment. But I would say together with still this historical tight spread, I would not put too much emphasis on this to be honest with you.
- [09:53]
A
On a slightly different topic, but still within credit markets there's a lot of talk about issues in the private credit space. What are your thoughts here? Is it something we should worry about more broadly?
- [10:06]
D
Well look, the number one question for us here thinking about asset allocation is basically is this of systemic relevance? And the short answer, our working assumption is no. So the private credit segment, this did grow a lot. Nothing to argue against this, but what I would typically look for in order to assess if it's systemic is how interconnected it is or in other words how the contagion, potential contagion risks are here especially also how it is embedded within the banking system because there it can easily spread throughout the broader economy if the banking system is affected. I think we can talk about this probably in a separate podcast, more in details, but what we see is yes we have some risks on banks balance sheets, but it's pretty much contained and also manageable. And more importantly, we don't see any off balance sheet risks or counterparty risks which are very worrisome at this point in time. So bottom line, we don't think any issues in private credit space are of systemic relevance.
- [11:17]
A
Very good. Thanks very much Dario for the interesting update again this week.
- [11:21]
D
Thank you Helen for inviting me as.
- [11:27]
A
And last but not least onto equity markets. Good morning Matthia.
- [11:32]
C
Good morning Helen.
- [11:34]
A
So a general question to start with, how are equity markets reacting to the ongoing geopolitical situation?
- [11:42]
C
So we have witnessed very sharp swings in equity markets lately. So last week's decline actually marked the fifth consecutive weekly loss, pushing major indices to multi month lows and with equity volatility back to levels seen during last year's tariff turmoil around Liberation Day. But what really stands out is how quickly the narrative can flip. So just this week we saw a near 3% rally in the S&P 500 driven by hopes of a potential de escalation after some signals from the US leadership that they will end the war with Iran within two or three weeks. So we clearly in a headline driven market, technology and cyclical corners of the market are leading these relief rallies while energy and defensive sectors lac intentions appear to ease. This kind of rotation tells you positioning is still very tactical rather than conviction driven. Importantly, oil prices remain elevated compared to the end of February levels, so the underlying macro pressure is still uncertain. So overall markets are caught between two narratives. Short term relief versus long term uncertainty. And that tension is likely to keep volatility elevated for some time.
- [12:50]
A
Is now the time to increase equity exposure?
- [12:55]
C
The short answer is no. I think it's still too early to turn more constructive. Overall, the key issue is that visibility remains very limited. So unlike previous episodes, this is not an onsighted exogenous shock where de escalation can be engineered quickly. So the path now depends on multiple actors, which makes the outcome inherently less predictable. At the same time, the longer energy prices stay elevated, the higher the risk of second round effects. And that means tighter financial conditions, weak consumption and a more complicated backdrop for central banks. So they have limited room to respond to a supply driven shock without risking high inflation. So from a position perspective, US equities are showing relative resilience since the start of the war, mainly due to the lower direct energy exposure. But we see that as a temporary phenomenon. So structurally the case for broader global diversification still remains intact. So rather than chasing short term rebounds to stay patient and use periods of US outperformance to gradually rotate further into non US equities.
- [14:01]
A
And how have emerging markets been doing? They've been quite resilient. Right? How can we explain this?
- [14:07]
C
Yes, indeed. So emerging market equities have been far more resilient than expected since the start of March, given the risk of backdrop that we have witnessed. So despite significant foreign outflows, the performance gap versus developed markets has remained relatively contained. So in March, EM equities declined around 13% in US dollar terms, so only modestly underperforming developed market equities. What's interesting is that the downside has been largely driven by sentiment rather than fundamentals. So if you look at earnings revisions, they have remained broadly stable to slightly positive since the conflict began. That suggests that so far there's no meaningful transmission into corporate profitability. The main channels of impact have instead been indirect. So higher energy prices and tight French conditions with the market implied beta would have suggested a much sharper correction, which simply hasn't materialized. So the resilience we're seeing is fundamentally driven and not just technical.
- [15:04]
B
Okay.
- [15:05]
A
And our overweight stance on emerging market equities remains intact.
- [15:10]
B
Yes.
- [15:10]
C
So the key point is that the core investment thesis for emerging market equities indeed remains unchanged despite its geopolitical developments. So first earnings expectations for this year for 2026 continue to look solid across regions with no evidence of broad based dollar revisions. That's a critical anchor in this volatile environment. Second, the macro backdrop also still remains supportive. Our base case assumes oil peaks around 110 US dollar per barrel with only limited economic impact by the US DOL expected to weaken again by around 8%. And the Fed is also expected to deliver two more rate cuts this year, so that combinations tends to be a strong tailwind for EM assets. And third, there's also structured growth angle that in our view remains underappreciated to emerging market equities, particularly in Asia, are deeply embedded in the global AI supply chain and continue to benefit from the CapEx cycle linked to artificial intelligence. So while the short term volatility may persist, the medium term setup still remains attractive, which is why maintain here our
- [16:14]
A
overweight stance all right, thank you Matthew. Really good to hear from you again this morning.
- [16:19]
C
Thanks for having me, Helen. Always a pleasure.
- [16:25]
A
So that's it for today. Thanks again to today's guests and to you, our listeners, for tuning in. I hope you enjoyed the show. If you did and you haven't subscribed yet, then don't forget to do that. And please join us again tomorrow when I'll be back with more colleagues and I'll be getting their thoughts on what's moving market. So have a great day everyone and bye for now. The information and opinions expressed in this podcast constitute marketing material and are not the result of independent financial or investment research. Please refer to www.juliusbear.com legal podcasts for further other important legal.