This time last year we were honoured to be invited to 'pitch' at the Sohn Conference in Hong Kong. Team Tosca's pick, Italian Bank BPER, came in a solid second with a return of over 100%, making the case for the bank, but also the wider thematic of European Financials being winners under the new New Normal. We had the added 'benefit' that the whole sector was oversold on a macro/emotional basis in the wake of the Silicon valley Bank debacle last March and while that has now unwound, the positive stance on the sector remains intact.

After a powerful run from q4 2023, equities paused in April, with many of the momentum stocks simply running out of, well, momentum and leading many to revisit the old adage of 'Sell in May'. Meanwhile, sentiment in the bond markets soured further as the prospect of rate cuts receded - although we remain of the view that the main purpose of rate cuts now is to ensure the stability of bond markets themselves. The best performance once again came from China and Hong Kong as these markets start a (long delayed) catch up as distressed sellers are cleared from the markets. Markets are generally trying to establish some trading ranges for the summer months and while foreign policy is increasingly bellicose as led by politicians facing re-election as well as the defence and energy sector lobbyists, western trade lobbyists are also hard at work, erecting tariff barriers and trying to co-opt third parties to do the same. While this is not good for their own consumers, it is also fighting the reality of high quality, much cheaper, products coming from Asian competitors, most of whom are not also facing high energy costs. Nor is a strong dollar helping. As such, many of the big global companies are facing serious competition in third party markets and investors, also looking to diversify portfolios, are starting to look at their overseas competitors.

The rally in asset markets in Q4 has evolved into a new bull market for equities, but not for bonds, which remain in a bear phase, facing problems with both demand and supply. As such the greatest short term uncertainty and medium term risk for asset prices remains another mishap in the fixed income markets, similar to the funding crisis of last September or the distressed selling feedback loop of SVB last March. US monetary authorities are monitoring this closely. Meanwhile, politics is likely to cloud the narrative over the next few quarters with the prospect of some changes to both energy policy and foreign policy having knock on implications for markets/

Bond markets are changing their views on Fed policy based on the high frequency data, seemingly unaware that the major variable the Fed is watching is the bond markets themselves. After the funding panic of last September and the regional bank wobble last March, the twin architects of US monetary policy (the Fed is now joined by the Treasury) are focussing on Bond Market stability as their primary aim. Politicians meanwhile, having seen how the bond markets ended the administration of UK Premier Liz Truss in September 2022 are keenly aware that it is not just "the Economy stupid", but the Economy and the markets that they need to manage the narrative for both voters and markets. They all need a form of Goldilocks - either good or bad, but not so good or so bad as to trigger either the markets to sell off or the authorities to react. Investors, meanwhile, conscious of the precarious balancing act Goldilocks requires, are increasingly looking at Gold.

The recent spike in Gold has baffled many, but brings together medium term risk management concerns by Central Banks to move away from the $ and investor concerns over the inflationary aspects and oversupply of Treasuries associated with US Fiscal Policy. Gold, and cash are the new risk off assets. The proximate near term cause may be an apparent move by US Banks to get exemption to fund a lucrative carry trade in Treasuries, but this back Door QE is making macro traders nervous and looks to be linking Bitcoin enthusiasts with fellow $ catastrophists in the Gold market - offering BOLD, a new blend of Bitcoin and Gold as the new 60;40 fund.