Investing & Performance | 15 April 2024

Monthly update: Interest rate cuts in sight?

Investors remain focused on when interest rates will drop. Here’s Coutts' take on it all, and a summary of how they make their investment decisions.


Despite increased volatility in March, markets rallied to record highs, fuelled by growing hopes central banks would start cutting interest rates this summer.

Stocks soared after US Federal Reserve (Fed) officials indicated they still intended to cut interest rates three times this year. Fed Chair Jerome Powell said a surprise inflation pick-up at the start of the year hadn’t changed the central bank’s outlook on the economy, and it still expected price rises to cool.

It was a similar story in the UK, with stocks surging to near record highs amid the global rally. The Bank of England held interest rates at 5.25% for a fifth consecutive time, but its governor Andrew Bailey said the prospects for a cut were “moving in the right direction”.

Meanwhile, the Bank of Japan decided to scrap its long-term negative interest rates, raising borrowing for the first time since 2007, but this had little impact on markets.

Policymakers are having to balance the risk of cutting rates too soon against signs of slowing inflation. Now that central banks have got a grip on prices, June is looking an increasingly likely start for the global cutting cycle.

Lilian Chovin, Head of Asset Allocation, Coutts, says: “Equity markets are currently in rude health. Inflation is still trending downwards, despite the odd bump along the way, and central banks should start cutting rates in the summer. Notably, the Swiss National Bank has already done so – cutting rates by 0.25% in March.”


We took profit from some of our gold holdings in March after its value surged. We’re holding the funds as cash. Soaring gold prices were partly driven by Chinese consumers seeking a safe place to park their cash after local property and stock markets tumbled last year. Prospects of a US interest rate cut in June also boosted demand.

However, while we reduced our position, we continue to favour gold and still hold it in our client portfolios and funds. Expectations of sustained growth and the possibility of easing inflation pressures should bolster the commodity in the medium term.

“There is also the possibility that inflation could rise again,” says Lilian. “If this happens it could lead to a reduction in the number of interest rate cuts in the US this year and cash and gold could play important roles in our portfolios and funds.”

Lilian adds, “The current growth in stock markets means our overweight exposure to equities has supported our performance. Stock valuations are currently elevated, but our dynamic and disciplined investment process enables us to adapt swiftly and capitalise on any emerging opportunities.

“More importantly, the economic outlook remains bright, which supports our positioning. We’re still in an expansionary phase of the economic cycle and companies are benefiting, as evidenced by rising corporate earnings.”


The value of investments, and the income from them, can fall as well as rise and you may not get back what you put in. Past performance should not be seen as an indication of future performance. You should continue to hold cash for your short-term needs.

“Equity markets are currently in rude health. Inflation is still trending downwards, despite the odd bump along the way, and central banks should start cutting rates in the summer.”


Lilian Chovin, Head of Asset Allocation, Coutts

This month's spotlight: Anchor and Cycle – our investment approach

When making investment decisions on behalf of our clients, our approach at Coutts comes down to three things:

  • First, we take risk where we believe it will be well rewarded. Everything we do when investing comes with an element of risk – even not taking a risk is a risk. We have a framework in place to help ensure we take ‘good’ risks – those with a high probability of a successful outcome.
  • Second, we aim to protect on the downside. In other words, we diversify our investments to try to pre-emptively manage losses within acceptable limits.
  • Third, we exploit sudden market shifts. Markets can often be irrational in the short run and such times can present the best opportunities – so we need to be ready to take advantage.

At the heart of all this are two key concepts – ‘Anchor and Cycle’.

The Anchor process drives our long-term active positioning. It’s about getting the big asset allocation decisions right and focuses on five-year time horizons. While short-term asset prices are important, it’s the long game that really matters. Examples of this in our portfolios include our recent allocation to gold as a diversifier and our overweight position in high yield corporate bonds.

Over the long term, returns on equities and bonds are generated from income and price changes, so we aim to harvest risk premia (the amount by which the return on a risky asset outperforms cash returns) at the right price. We don’t have preconceptions – these big decisions are grounded in data.

Cycle is about where we are now in the business cycle, the current market mood and the policies coming out of governments and central banks. It focuses on an 18-month time horizon and looks at how things like growth, inflation and policy drive performance. We look at the macroeconomic environment alongside market expectations and find tactical opportunities between the two – where the macro and the market don’t agree.


Coutts clients can find out more about our investment approach by speaking to their private banker.


The above article has been written and published by Coutts Crown Dependencies investment provider, Coutts.



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