The Swiss economy is at its top level since the Swiss franc’s sharp appreciation in 2015 (see chart 3). Manufacturing
industry is the engine of growth, while private consumption is facing difficulties, penalised by weak job creation. Growth will remain positive in the coming quarters but is expected to slow, as anticipated by purchasing managers whose confidence has recently weakened during March.
The marketplace cycles between good and bad seasons. Although each bull market has its own characteristics, it is generally linked with a strong national economy, increased investor optimism and a greater demand for risky assets. Bear markets, too, have their own personalities, but are closely associated with a weakened economy, pessimistic investing attitudes and more risk-averse investments. Knowing that, it can be incredibly intimidating to decide when to be risk-on or risk-off. Investors shouldn’t act out of greed or fear but control themselves.
Markets have been on edge over elevated tariffs rhetoric between the United States and China possibly resulting in a
potential trade war, which would be negative for global economic growth. Last Friday, President Trump threatened to add another $100bn taxes on Chinese goods while President Xi Jinping said he was prepared to respond with a fierce counter strike.
The US-led “trade war” is not helping economic stability. Geopolitics tensions are not only increasing between the United States and China. In the Middle East, Saudi Arabia intercepted a missile fired from Yemen. Hours after the U.S. Federal Reserve raised interest rates and boosted growth forecasts for this year and next, survey data from elsewhere provided a reminder of how the international economic outlook could turn. The global economy’s upswing showed signs of strain in March as a drop in momentum at businesses from Japan to the Euro Area underscored the world’s vulnerability to confidence shocks from a trade war.
The Geopolitical Risk Index, developed by the Federal Reserve, has risen to a 15-year high. This is the riskiest political backdrop since the 2003 Iraq war. It is not hard to understand with trade war fears, the volatile Korean peninsula, the high turnover in the White House, China’s XI extending his presidency beyond 2023, Putin winning another term, relations between UK and Russia souring rapidly, etc. This could be seen as a risk-off factor for financial markets. Typically, the correlation runs from geopolitical events to stock market volatility and policy uncertainty.
Thanks to the implementation of ultra-expansive monetary policies by the main central banks, the excess of liquidity has structurally encouraged risky bets from debt holders and the fall in yields. This is the case for sovereign bonds, but even more for corporate ones. Interest rates charged by investors to finance corporate debt fell faster than public debt rates. Thus, credit spreads are at, or near, historical lows.
For his first testimony, Jerome Powell was globally more hawkish than expected by investors, but there was no big surprise. As a result, the rise in interest rates, the fall in equities and the rise in the dollar were moderate. The new Fed Chairman focused on positive factors: a strong global and US economic growth, good employment figures, a rebound in inflation to reach the Fed’s 2% target, and the recent fiscal stimulus implemented by the Trump administration.
Financial markets have stabilized in recent days. For the week, the S&P 500 index was up 0.6%. It was finally firmer on Friday after days of weakness. The US 10-year treasury yield was stable at 2.87%, after hitting 2.95% on Wednesday on hawkish Federal Open Market Committee (FOMC) minutes. 3% remains the next psychological resistance to watch. The VIX Volatility Index is currently trading near 16.5, its lowest level since February 2. The US Dollar was firmer by 0.7% against the euro. To compensate this relative strength, gold was slightly lower by 0.6% to $1339 per ounce.
The consumer-price index leaped 0.5% in January to mark the biggest increase in five months. Inflation has re-emerged after a long period of dormancy; giving investors’ the jitters. Wall Street is worried rising prices will force the Federal Reserve to raise U.S. interest rates more aggressively and potentially choking off an economic expansion that’s almost […]
Are markets falling because of inflationary fears? Some investors are trying to justify this decline in the equity markets because of a stronger-than-expected inflation, particularly in the United States, which would encourage central banks to tighten aggressively their monetary policies. This rise in interest rates would slack down economic growth and profits of listed companies, causing a bear…