Optimism in the equity markets calls for caution

At a glance

Economics

• US economy more robust than expected, soft landing instead of mini-recession, new upswing in 2024 sales.
• Europe: Consumer purchasing power recovers, but headwinds for industry from abroad. Stagnation in H2 2023.
• Inflation declining, interest rate peak (almost) reached. Fed will cut rates from spring 2024, ECB will keep rates stable in 2024.

Equities

• Economic optimism regarding the equity markets continued in July. Equity performance mainly valuation-driven.
• Cyclical outperformance, continued high positioning and first rifts in the Q2 reporting season make markets vulnerable.
• We maintain a moderate equity underweight and see an increased risk of a setback in Q3.

Bonds

• Price rally in investment grade and high-yield bonds due to declining risk premiums.
• The rate hikes cycle seems to have peaked. However, high interest rate volatility favours a duration close to neutral.
• Covered bonds, IG corporate bonds (especially financial bonds) and emerging market bonds in local currency remain attractive.

Commodities

• Gold unchanged over July on stronger real interest rates and US dollar. Potential is limited with "soft landing".
• Oil with recovery due to more pronounced supply deficit. Catalysts increasingly materialised after strong rally.
• Base metals stabilise on optimism in regards to China's stimulus measures. Clear signals are still necessary.

Currencies

• EUR/USD is looking for guidance after the latest ECB and Fed rate decisions and is hovering around 1.10.
• The BoE's tighter monetary policy is helping the pound. EUR/GBP remains at around 0.86 pound per euro.
• The Swiss franc remains bearish and continues to push the euro well below parity with an exchange rate of 0.96.