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Output data in the eurozone have held up much better than expected despite a sharp slowdown in leading economic indicators. This is especially true for manufacturing output, which was up 0.7%, compared with the +0.2% forecast – a sign that supply chains are returning to normal. However, high energy prices mean that the next few quarters will be tough.

The Chinese authorities took investors by surprise on Monday when they announced that interest rates would be cut in a bid to boost the country’s ailing economy. This came after manufacturing output and retail sales struggled to maintain momentum in July. One reason for this softness was the slowdown in lending growth, which has not been as responsive to stimulus measures as it was during previous downturns.

The US reporting season was positive overall. Corporate earnings were up almost 9% year on year, and 75% of companies beat their consensus forecast. However, leaving out the energy sector, which has been boosted by the surge in oil prices, companies reported slightly negative growth overall.

US inflation has turned the corner at last

It was only a matter of time – it took just a few months for the downturn in the prices of most commodities to spread along the price chain and at last ease the pressure on US consumers’ wallets.

Consumer price growth fell to 8.5% year on year in July, down from 9.1% the previous month. Also both producer prices and import prices have dropped back – a sign that the inflation trend has indeed been reversed. The decline in the price of oil and related fuels is of course one of the main factors behind this change in course after surging petrol and diesel prices pushed up freight costs and drove down consumers’ purchasing power in the first half of the year.

If inflation continues to ease over the next few months, it will be great news for the US economy: the US Federal Reserve will be less concerned about a potential inflationary spiral and will carry out fewer rate hikes, and a soft landing for the US economy will be more likely. What’s more, following the recent drop in the price of gasoline, the University of Michigan’s Consumer Sentiment Index is beginning to recover from the all-time low it reached in June.

Fears of a deep recession in the US are therefore starting to fade, which has been a boon for the financial markets. Risk assets continue to bounce back, and the rise in US stocks and non-investment grade bonds has driven up all other finan-
cial markets around the world as well.

Even European stock markets have been boosted by the renewed optimism, despite the fact that the region is in the grips of an energy crisis that will continue to weigh on the finances of households, companies and governments. The technical configuration of the US stock market and investors’ still-bearish sentiment suggest that US equities will keep moving upwards in the short and medium term.

Switzerland – as solid as a rock

Most industrialised countries currently face a bleak outlook, with recessionary fears, soaring inflation and weak economic indicators. Switzerland, however, stands out from the crowd because its economy is once again doing quite well.

Although GDP growth has slowed, macroeconomic indicators are higher than in other regions, and it seems unlikely that Switzerland will enter a recession in the next twelve months. On top of that, other data, such as corporate earnings, keep coming in better than expected. Inflation is also well below the levels seen elsewhere in Europe and in the States.

The lack of visibility makes the Swiss market all the more attractive – Swiss equities proved more resilient than others in the first half of the year and will continue to hold up well until global uncertainty and recessionary fears subside. However, if investors start wanting to take on more risk, which seems to have been the case in recent weeks, Swiss equities – particularly large caps – may struggle.

Given the high level of uncertainty, especially in Europe, we remain constructive on the Swiss market. We also recommend turning back to small caps, which have been largely overlooked since the beginning of the year and whose valuations are once again becoming attractive.


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