The US economy holds steady…
Despite undeniable signs of deterioration, the US economy continues to demonstrate remarkable resilience. Last week, activity indicators were released and came in above expectations, both in the manufacturing and services sectors. The labour market also proved more robust than anticipated in June, with an unexpected drop in the unemployment rate to 4.1% (down from 4.3% the previous month). Admittedly, the negative effects of Donald Trump's policies, particularly in terms of international trade, are not expected to materialize until later this year. As Jerome Powell noted before congress, economic weakening is anticipated in the second half of the year, which would fully justify intervention by the Federal Reserve. Indeed, the Fed plans to resume its monetary easing cycle in September and is expected to cut its key interest rates twice (by a total of 50 basis points) by year-end.
Caution in the face of new turbulence?
Rarely in recent history have political and geopolitical uncertainties been so acute. Yet, in this troubled context, the global economy is showing unexpected resilience. While the slowdown is real, underpinned by declining household and business confidence, the fundamentals of several major economies remain solid.
In the United States, despite waning consumer sentiment, consumption, the main driver of growth, continues to be supported by a strong labour market and sustained wage growth, in a situation that remains close to full employment. In Europe, led by Germany, fiscal support plans are playing a buffer role. The same applies to China, where authorities are relying on stimulus measures to mitigate the effects of new US tariff barriers.
The macroeconomic environment is also characterized by a general trend toward disinflation. Falling energy prices, particularly oil, are helping to ease global inflationary pressures. The US could be an exception on this front, as the imposition of new tariffs may trigger a temporary rebound in inflation in the second half of the year. However, this uptick is unlikely to derail the monetary policy trajectory of the Federal Reserve, which could resume its easing cycle and thereby align with the global trend toward monetary accommodation.
In this multifaceted context, we remain confident in the markets’ ability to deliver performance but are temporarily adopting a more cautious stance. With the tariff suspension period set to end in early July and uncertainty intensifying, we have decided to tactically and temporarily reduce the equity allocation in our portfolios (from 43% to 41% for a balanced profile), notably by trimming US holdings.
At the same time, we continue to reduce our exposure to the dollar, convinced that its downward trend is likely to persist. On the fixed-income side, we are lowering our positions in Swiss francs, especially in CHF-based portfolios, given the lack of attractive yields. Conversely, we are increasing our exposure to yen-denominated bonds, which currently offer higher yields than the Swiss market, a configuration not seen for quite some time. This diversification appears even more appealing as the yen seems significantly undervalued, after several years of decline.
This week’s figure: 0.7874
The US dollar has hit a new low against the Swiss franc, and there appears to be no way of stopping its slide. It is worth noting, however, that the prevailing deep pessimism among investors toward the dollar could trigger a temporary technical rebound at any moment.
Author
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Daniel Varela holds a degree in business administration with a specialisation in finance from the University of Geneva and began his career in 1989 as a fixed income manager. He joined Banque Piguet & Cie in 1999 as head of institutional asset management and with responsibility for bond analysis and management. In 2011, he became head of the investment strategy and Piguet Galland's investment department. In 2012, he joined Piguet Galland's Executive Committee as CIO.
