Mutual funds: monthly reports

CIO Report - March 2026

Markets

Financial markets in March were clearly dominated by the escalation in the Middle East. Following the onset of military strikes against Iran at the end of February, the reporting month was primarily shaped by the sharp rise in oil prices, increasing inflation expectations and concerns about a stagflationary shock. The initially widespread expectation of a short and contained conflict gradually gave way to the view that geopolitical tensions could persist for longer. In the US, alongside solid economic data, monetary policy expectations moved to the forefront. Previously priced-in rate cuts were largely removed from market expectations. In Europe, rising energy prices also led to a significant reassessment of the interest rate outlook. Across major asset classes, markets showed a weaker overall picture. Equities declined globally, with both the US and Europe recording notable losses, particularly in growth and technology-driven segments. In fixed income markets, government bond yields rose markedly, creating a more challenging environment for rate-sensitive segments and weighing on corporate bonds. In commodities, the focus was primarily on oil, where prices rose sharply in response to geopolitical risks, while precious metals, despite their defensive characteristics, came under pressure over the month. In foreign exchange markets, the US dollar strengthened overall, supported by higher US yields and its role as a safe haven in an environment of elevated uncertainty.

Outlook

Rapidly rising government spending, particularly in the US, but also in Europe and Japan, is generating strong impulses for global economic growth. This development is supported by an increasing shift of financial market liquidity into the real economy, as well as substantial investments by the “Mag7” in data centres and AI infrastructure, amounting to around 2% of US GDP. In addition, China continues to expand its money supply to support economic activity. Overall, this is creating upward pressure on commodity prices, inflation and interest rates. At the same time, global financial market liquidity is losing momentum and is even declining in absolute terms. This creates headwinds and higher volatility in both equity and government bond markets. These dynamics are further amplified by uncertainties in the Middle East and rising energy prices. However, these factors are likely to represent only a temporary disturbance, whereas the decline in liquidity is structural in nature.
Most market-relevant drivers — the reallocation of financial market liquidity into the real economy, rising government debt, the monetisation of public debt via T-bills, inflation dynamics and the geopolitical backdrop — are moving in an unfavourable direction. However, the tipping point for the global financial system has not yet been reached. As a result, the overall “big picture” for markets and the global economy remains marginally neutral for now. That said, the margin for error is narrowing rapidly and we are approaching a more vulnerable phase. The key issue is that the main negative drivers, particularly government debt and inflation, are structural and are therefore unlikely to improve even after an end to the Iran conflict. Markets are beginning to price this in. A notable example is the rise in yields on two-year US Treasuries above Fed funds rates. This anticipates potential rate hikes by the Federal Reserve and is also feeding through to the long end of the global yield curve.