Increased risks of setbacks on the stock markets

At a glance

Economics

• US economy: soft landing instead of mini-recession, new upswing in the course of 2024.
• Europe: Consumer purchasing power recovers, but industry and residential construction decline. Economy weak for now.
• Inflation declining, interest rate peak (almost) reached. Fed cuts rates from spring 2024, ECB keeps rates stable in 2024.
  

Equities

• Equity markets recovered at the end of the month after weakness until mid-August. Valuations still elevated.
• Ambitious earnings expectations, seasonality and late effects of tight interest rate policy make markets vulnerable.
• We maintain the moderate equity underweight and see an increased risk of a setback by the end of the year.

Bonds

• Safe government bond yields rise in the face of higher long-term real interest rates and a flood of new issues.
• High interest rate volatility and uncertain Fed interest rate policy continue to argue for duration near neutral.
• IG corporate bonds clearly more attractive than high-yield bonds. EM local currency bonds still preferred.

Commodities

• Gold currently lacklustre with strong dollar and high real interest rates. Only a turnaround by central banks offers potential.
• Oil with recovery due to more pronounced supply deficit. Catalysts increasingly materialised after the strong rally.
• Base metals remain cyclically sensitive but benefit from low inventories and strong "green" demand.

Currencies

• The US dollar has the upper hand thanks to the monetary policy outlook, EUR/USD falls back towards 1.07.
• EUR/GBP remains stable at 0.86 pounds per euro. Bank of England approaches interest rate summit.
• Nothing new with the Swiss franc: it remains very strong and continues to hold the euro well below parity at around 0.96.