The FED lowered the interest rates by 0.50 % on 18 September 2024 and indicated further rate cuts. This marks a significant shift in US interest rate policy for the coming 2-3 years which has been long anticipated by the capital markets. Previously, the European Central Bank (ECB) had lowered the interest rates for the second time on 12 September 2024, after it had already made a first interest rate cut in June 2024.

On 24 September 2024, the Chinese central bank (PBOC) along with other Chinese regulatory authorities announced measures to promote growth. The PBOC lowered the short-term benchmark rate by 20 basis points to 1.5 % and reduced the minimum reserve ratio of banks by 50 basis points. Unexpected was the introduction of a swap scheme amounting to 500 billion yuan which should allow institutional investors such as asset managers and insurers to exchange risky assets as collateral for highly liquid assets, to support the stock market. In addition, a credit scheme worth 300 billion yuan was introduced, specifically for financing share buybacks.

The timing of these measures was carefully chosen. On the one hand, China will be celebrating its 75th anniversary on 1 October 2024, and on the other hand, the country is looking to secure an economic advantage before the US presidential elections take place in November 2024, where America might possibly take a stronger economic stance against China.

Since the fourth quarter of 2022, stock markets have been in a recovery phase, which was however interrupted by a larger correction in August 2024. This was particularly due to the increasing probability that Donald Trump will become US President again after an assassination attempt, which led to a sector change. Technology stocks (Nasdaq) lost value, whilst old economy shares (Dow Jones 30) benefited from the expected subsidies and tax advantages of a possible Trump administration. Weak US employment figures on 26 July 2024 further intensified the price weakness. On 31 July 2024, the Bank of Japan surprised with an interest rate increase, leading to another wave of selling as many investors repaid yen-based loans and sold their financed securities.

Despite these turbulences, the markets quickly resumed their upward trend. Interest rate cuts on both sides of the Atlantic have created favourable conditions for businesses as they have led to lower financing costs and better investment opportunities. This should result in higher corporate profits and rising share prices.

Bonds also benefit from interest rate cuts, with bonds having a longer remaining term offering the greatest potential for price increases.

Despite the recent weakness of the US dollar against the euro, we expect the USD to remain overall stable.

Lilux Convert was able to achieve a gain of 3.95 % in the 3rd quarter.