It’s mission nearly accomplished for central banks
The global economy has proved to be remarka- bly resilient over the past year despite numerous headwinds, such as the war in Ukraine, high in- flation and sharp monetary policy tightening by the major central banks. This is largely because consumers’ financial position has remained solid – unemployment rates have been close to their all-time lows, wages have risen and people were able to build up their savings during the pande- mic. All these factors mean that people have kept up their spending despite the prevailing anxiety.
This resilience in consumer spending is good news as the outlook brigh- tens for central banks. Inflation is returning to more normal levels across the board. Prices of manufactured goods have fallen sharply following the decline in commodity prices, and this disinflation is now spreading to ser- vices. This trend should provide some reassurance to central bankers in developed countries, who probably implemented their last rate hike for some time this summer. With the exception the Bank of Japan (BoJ), which has not yet begun normalising its monetary policy and continues to be out of sync with its peers, central banks will soon have to start thinking about when to begin cutting interest rates. Barring an unexpected economic downturn, this is unlikely to happen until the second half of 2024. The rise in mortgage interest rates has weighed on new builds, but it hasn’t had the same effect on capital expenditure, which actually seems to be picking up again in the US, as debt levels remained contained and profit margins held up well ¬– and sometimes even rose – when inflation was at its peak. For once in Europe, the peripheral countries have withstood the global slowdown fairly well, while Germany is being dragged down by its manu- facturing sector’s dependence on cheap Russian natural gas. That has also had a knock-on effect on the Swiss economy, which is paying the price of its privileged trading relationship with Germany.
The Chinese authorities are now stepping up their stimulus measures, and it seems that the global economy has bottomed out. Growth is likely to recover in 2024 and then pick up pace in 2025. The start of a new economic cycle should push up stock markets after their summer slump, especially since the upcoming monetary policy turnaround will rein in ri- sing bond yields, which are currently at a 15-year high in the US. This tension is a boon for the US dollar, which is gradually shaking off last autumn’s downtrend. The Swiss National Bank seems to be reconside- ring its recent policy of keeping the Swiss franc strong, which could mean that the Swiss currency will come down from its lofty position against both the greenback and the euro. As a result, we’re reducing our exposure to the Swiss franc in CHF-denominated portfolios and main- taining a constructive stance on equities. We’re increasing our exposure to Swiss real estate funds, whose premium are at a 15-year low.
See the full analysis of the economic and market situation in our investment strategy, as well as an update from our CIO, Daniel Varela, in this short video:
To find out more, watch the replay of our 11 October webinar on our Q4 2023 investment strategy. Please note that this webinar is in French. We are working on the English version, which will be available soon.
Access to the replay of the webinar
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.
