The S&P 500 still hasn’t broken through key resistance levels. But two events set to take place this week could push it above those levels: the release of US inflation data on Tuesday and the US Federal Reserve’s comments when it raises rates on Wednesday.
We should see even more pent-up demand from Chinese consumers than we did when the US and European economies reopened, since the lockdown in China has lasted nearly three years rather than several months. Chinese consumers should be ready to spend, even though the domestic economy is slowing and they, unlike US consumers, haven’t received any stimulus cheques.
Alternative fund indexes had a good month in November, recording gains of around 2%. Their performance over the year is more or less flat, which means they have fared better than other asset classes.
SNB - one for the road ?
It’s going to be a busy week for central banks, with a number of monetary policy meetings due to take place. Among the world’s most powerful central banks, the US Federal Reserve (Fed), the European Central Bank (ECB) and the Bank of England (BoE) will all meet this week. The Swiss National Bank (SNB) will also hold its last meeting of the year. All of these banks are expected to raise rates – it’s the size of the hikes that may come as a surprise. Central banks have increased rates very quickly over the past six months but are likely to start being more cautious now that GDP growth has slowed sharply across the board. It often takes six months – or even longer in some cases – for monetary policy decisions to start having an impact on the economy, so central bankers will probably be tempted to ease up on their tightening to see whether the hikes carried out so far have achieved their main objective of reining in inflation. The Fed, the ECB and the BoE may decide to reduce their hikes from 75 basis points to 50 basis points, especially since inflation appears to have peaked in most major economies and seems close to doing so in the eurozone. The SNB is also expected to carry out a smaller, 50-point hike. A more cautious approach makes sense, given that Swiss – like US – inflation has been easing since the early summer. It’s worth remembering that Swiss annual inflation currently stands at 3%, so Switzerland is much closer to the 2% target commonly set by central banks than the US and the eurozone are. What’s more, Swiss core inflation, which excludes the most volatile items such as energy and food, has not really moved above the well-known 2% threshold this year. So this week we could see the SNB’s last round of tightening for this cycle. Its following meeting is scheduled for the second half of March, which may well be when economic growth bottoms out in both the eurozone and Switzerland.
What impact are rising rates having on Europe’s sector ?
2022 will be remembered as the year when inflation returned after 40 years. At first, the ECB was not overly concerned because the uptick in inflation was mainly caused by temporary factors, like rising energy and food prices. But these inflationary pressures turned out to be less transitory than expected. So in July, the ECB began aggressively tightening its monetary policy, with key interest rates rising from –0.5% to 1.5% in the space of just three months. Households – especially those with variable-rate mortgages – were the first to feel the pinch. However, the hikes will affect eurozone countries to varying extents. Countries with low levels of household debt, such as those in Eastern Europe, will be less impacted, and France and Germany shouldn’t be hit too hard in that respect either. Scandinavian countries, however, have very high levels of household debt and a large proportion of variable-rate mortgages, so they are likely to be more heavily affected. Some key players in the Scandinavian property sector – particularly those at the top end of Sweden’s market – are already starting to run into difficulties. The ECB may begin to slow the pace of its monetary tightening after the sharper-than-expected decline in inflation in November. But we mustn’t forget that interest rates have risen very quickly, and it will take some time for the full impact to be felt. It’s therefore still too early to rule out the possibility of financial fallout in the property sector.
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.
