At a glance: What you need to know from last week

Gold prices have reach fresh all-time highs
Gold rose to over USD 3,000 per ounce for the first time this month, following renewed Israeli military strikes in Gaza. This rise in tensions in the Middle East came alongside continued tariff uncertainty, concerns over the US economy, and rising expectations for Federal Reserve rate cuts. Gold has gained around 15% year-to-date, building on its 27% advance in 2024.

The last time bullion crossed a significant threshold was when it broke through USD 2,000/oz in August 2020 amid COVID-19 uncertainty. With the USD 3,000/oz milestone reached, investors may question if gold's appeal can extend further. But, in our view, geopolitical tensions remain high, and markets have moved to price in a faster pace of rate cuts from the Fed, providing extra support for gold.

Tariff concerns have intensified following the US's “fentanyl-related” import duties on China, Canada, and Mexico. President Trump has vowed to impose new tariffs on 2 April—though the scale and scope of these duties remain to be seen. In the Middle East, military actions have escalated, with strikes in Yemen and Gaza. Financial conditions are tight, and sentiment indicators have led markets to price in three US rate cuts this year. Rate cuts reduce the opportunity cost of holding non-interest-bearing assets like gold. Recent weeks have seen accelerated exchange-traded fund (ETF) inflows, fulfilling a key requirement for higher gold prices. SPDR Gold Trust holdings are at their highest since February 2023, and European ETFs have hit record levels.

Takeaway: We see scope for further (albeit more limited) gains in gold, having recently revised our target to USD 3,200/oz by June and through March 2026. Despite technical overbought conditions, cautious investor sentiment supports gold appetite. Gold remains a key hedge against uncertainty and risk aversion, in our view. We also favor silver and see opportunities in Brent crude oil for portfolio income. Diversification is crucial, and we recommend highly rated government debt and structured strategies to hedge equity exposures and enhance portfolio resilience.

The global rate-cutting cycle has further to go
Last week marked a busy week of interest rate decisions, with central banks navigating a complex economic landscape. The Federal Reserve and Bank of England held their rates steady, while the Swiss National Bank implemented a 25-basis-point rate cut. Meanwhile, the Bank of Japan, which has been bucking the global trend toward easing by tightening policy, also left rates unchanged, reflecting a cautious approach to hiking following data showing faster-than-expected inflation. These decisions underscore the delicate balance central banks are striving to maintain in response to the threat of higher prices due to tariff increases and the potential for slower growth.

Notably, the Fed’s latest projections showed slower GDP growth and higher core inflation due to potential tariff impacts. However, Chair Jerome Powell downplayed the potential impact of tariffs on inflation, referring to the effects as “transitory,” ultimately providing reassurance to markets. We anticipate the US economy will grow close to its 2% trend this year, though tariffs pose a risk to the outlook, in our view.

Despite both the Fed and Bank of England leaving rates unchanged, the global rate-cutting cycle still has further to go. The Fed’s median dot plot, which charts the rate expectations of top officials, still showed a median forecast for 50 basis points of easing by year-end, suggesting that the Fed will look through tariff-related price increases. Additionally, we expect the Bank of England to implement three 25-basis-point cuts over the remainder of this year, reflecting the outlook for moderating inflation pressures and weaker growth. The European Central Bank is also anticipated to ease further, highlighting a global trend toward accommodating monetary policies due to moderating inflation pressures and weaker growth.

Takeaway: We believe optimizing cash holdings and seeking durable income should remain a strategic priority for investors. We recommend staying invested in stocks with hedges and maintaining quality fixed income as part of a resilient portfolio. Investors can consider diversified fixed income strategies, senior loans, private credit, and equity income strategies to build diverse and durable portfolio income.

German lawmakers approve spending boost
In an historic move, Germany is poised to launch its most ambitious defense spending program since World War II. Germany's Bundestag and Bundesrat both approved a large increase in government spending on defense and infrastructure, proposed by Chancellor-in-waiting Friedrich Merz.

The Christian Democratic Union and Christian Social Union, emerging as the largest group in February’s election, supported the bill, which was passed by the Bundestag with 513 votes in favor and 207 against, surpassing the two-thirds threshold needed to amend Germany's borrowing restraints. The legislation allows defense spending exceeding 1% of GDP to be excluded from the debt brake. Together, the measures contained in the bill imply a significant increase in fiscal space against domestic borrowing rules. On a cumulative basis, extra spending could comfortably exceed EUR 1 trillion over the next decade, based on our calculations.

While additional spending will take time to feed into the economy, over the longer term Germany should benefit from what could be a large boost to demand from the public sector. Euro bond yields have risen significantly in response to Germany's spending plans, likely reflecting a combination of more hawkish market pricing for European Central Bank policy and the anticipation of higher bond supply. However, we think this move may have gone too far. We don't expect the fiscal package to be a drag on Germany's credit rating, especially in a scenario of gradual implementation and with some growth benefits coming through.

Takeaway: We see scope for investors to lock in yields at attractive levels, although select quality corporate debt could present better risk-return opportunities amid elevated volatility in Bunds, in our view.