When will consumers get their confidence back?
The University of Michigan just announced a sharp and unexpected decline in its flagship consumer sentiment index. This has wiped out the small upturn recorded at the start of the year and brought the index back down to the low levels recorded consistently over the past two years – readings we usually see during very tough economic times like the 2008–2009 financial crisis. So what’s the reason for the downtrend at a time when US households are in pretty good financial shape? After all, US consumers have reduced their debt levels considerably over the past 15 years, the jobs market is buoyant, wages are rising, and property and asset prices are moving upwards. Could the gloom be linked to geopolitical tensions, or perhaps to the environmental issues? Maybe it’s the rebound in oil prices, or high inflation and interest rates?
This same trend can be seen in most developed countries. In the eurozone, for instance, consumer confidence, as measured by the European Commission, is still well below pre-COVID levels despite a recent uptick. And, unsurprisingly, confidence is also low among UK consumers given the steady flow of bad economic news since the Brexit referendum in 2016. Switzerland hasn’t been left unscathed either: the latest reading from the Swiss Secretariat for Economic Affairs puts consumer confidence close to its lowest level in over 25 years.
But consumer sentiment is often low early on in an economic cycle. So with central banks on the cusp of loosening their monetary policy and manufacturing expected to pick up, it’s probably only a matter of time before consumer confidence does the same. This should then have a knock-on effect on consumer spending. And while the services sector has proved to be very resilient over the past two years, we should see a recovery in spending on durable goods, which will boost sectors like construction, real estate and cars. On top of that, consumer confidence is usually riding high when stock markets hit their peak, so the current lack of confidence among households is actually a good sign for investors.
A strong rally for Swiss equities
Switzerland’s stock market indexes put in a very solid performance last week, particularly when compared with global equity indexes. With UBS and Geberit leading the way, all 20 SMI stocks gained ground after posting robust financial results. Could this be the end of the Swiss market's nearly 18-month-long underperformance? It’s true that investors’ relatively low expectations for the domestic market made it easy for Swiss companies to beat the consensus in the recent earnings season. On top of that, the traditional premium on Swiss equities, which has been 7% on average for the past 10 years, has been completely wiped out, with Swiss stocks now trading at a 2% discount. We therefore think that, in relative terms, the domestic stock market will gradually catch up with global indexes, which are currently more highly priced.
This week’s figure : 102.5%
This is the new customs tariff introduced in the US on Chinese e-vehicles – an increase on the current rate of 27.5%. It’s a sign of what the Biden administration has in store in the six months leading up to the presidential election.
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.
