After proving to be surprisingly resilient at the start of the year, Switzerland’s economy – just like those of its main European trading partners – slowed sharply in July. At 44.7, the country’s manufacturing PMI sunk further into contraction. This disappointed economists, who had expected it to remain at its June level of 47.5.
Gold prices have soared to USD 1,500 per ounce on the back of the renewed escalation in the US-China trade war. Gold is clearly being buoyed by its safe-haven status, as well as by the soft dollar.
Chinese exports unexpectedly picked up in July, rising 3.3%. Demand from Europe, South Korea, Taiwan and other South-East Asian countries largely offset the continued drop in US demand and other negative impacts of the trade war.
Adjusting our equity exposure
Stock markets have experienced an uptick in volatility in recent weeks. The slew of bad news and far-from-positive events prompted investors to move into less risky assets, especially sovereign bonds. Although the US Federal Reserve delivered its first rate cut – of 25 bps – in over a decade, it adopted a less accommodative stance than expected, which dampened investor enthusiasm. Jerome Powell was surprisingly vague about the rate path ahead, denting hopes of further cuts this year. Some – including President Trump – accused the Fed of being too timid, given that recent economic data suggest the US economy may be running out of steam. We think the Fed – like other major central banks – needs to be ready to take action should the economy take a turn for the worse. And among central banks, the Fed has the most leeway to boost its domestic economy. We think the US-China trade dispute is more of a concern at present. In a further escalation, Trump announced that he would slap a 10% tariff on the remaining USD 300 billion in Chinese imports starting on 1 September. Washington put this additional pressure on Beijing after talks between the two superpowers ground to a halt – suggesting that the dispute is unlikely to be resolved any time soon. China retaliated immediately, devaluing its currency and stopping purchases of certain agricultural products from the USA. This latest development was not part of our core scenario. Given the lack of visibility, we have decided to slightly reduce the risk in our portfolios and take profits on US equities. We are also reducing our exposure to Japanese equities so that it is closer to neutral, in light of the gloomy outlook for Japan’s economy, which has already slowed sharply and could be hurt by the upcoming rise in the sales tax. What’s more, the yen, which is often used as a safe-haven currency in times of stress, is negative for its exporting companies as it strengthens – another reason that urges us to be cautious on Japanese stocks.
Alternative funds – nothing but beta
To go deeper
After proving to be surprisingly resili-ent at the start of the year, Switzer-land’s economy – just like those of its main European trading partners – slowed sharply in July. At 44.7, the country’s manufacturing PMI sunk further into contraction. This disap-pointed economists, who had ex-pected it to remain at its June level of 47.5.
The IMF cut its global growth forecast for 2019 to 3.2%, down from its April estimate of 3.3%, as US-China tensions or a no-deal Brexit could slow growth, weaken investment and dislocate global supply chains.
China’s structural decline in economic growth continued last month, with GDP expanding 6.2% on an annualised basis, in line with expectations. However, short-term indicators already show the effects of the government’s stimulus programme – industrial production, retail sales and capital spending all came in above the June consensus estimates...