In the first round of new elections in France last weekend, the Rassemblement National takes the lead. Together with the allied Union de l'extrême droite, the right-wing alliance achieved just under a third of the vote. Depending on the outcome of the second round of voting, the coming months are likely to be characterised by volatility on the French and European stock markets in general. However, we do not expect any immediate negative economic impact for France - regardless of whether the Rallye Nationale achieves a clear majority in parliament or whether a newly forged alliance holds the majority in the dysfunctional and fragmented National Assembly. We would cite the far-right government in Italy as an example of how France would move forward and proceed in the coming months. In this respect, a victory for the Rassemblement National might not be the disaster that is expected. However, political uncertainty will certainly increase significantly. Le Pen's agenda is clearly populist and fiscally expansionary, which means that the risk premium for France is likely to remain. France's leading stock index, the CAC 40, is being penalised, losing 6.4% in June and thus, not surprisingly, performing significantly worse than all other indices in Europe. The Swiss stock market is the exception in Europe and is virtually unchanged on a monthly basis. The SMI showed a stable sideways trend and was held close to zero by some blue chips - above all Roche. Due to the strength of the Swiss franc and the renewed lower inflation outlook, the SNB lowered its key interest rate for the second time and is thus once again leading the "leaderboard" of the major central banks in the rate-cutting cycle. The ECB lowered its key interest rate for the first time in this cycle in June and it is expected that further steps will follow over the course of the year if inflation trends permit. The USA is continuing to pursue a restrictive monetary policy and does not want to cut interest rates too soon in order to counteract an overheating economy and a possible re-acceleration of inflation - the economic data of recent months confirm the Fed's monetary policy course - so far.
Technology stocks reached new highs in the wake of the AI rally. The main protagonist in this topic - NVIDIA -
briefly reached the podium as the most valuable company in the world, overtaking Apple and Microsoft in terms of market capitalisation. As a result, the S&P 500 and Nasdaq 100 are trading significantly higher than the European indices. The growing demand for electricity associated with AI is considerable (see FOCUS). The Swiss indices did not show any major advances at index level. Below the surface of the SMI, the Roche shares should be highlighted, which started a pleasing countermovement and gained 8% in June. The rally in the Chinese stock market, which extended to almost 32% in the MSCI China Index from mid-January to mid-May, is now coming under pressure. In the run-up to the third plenum of the Communist Party, which is an important political event in China and takes place every five years, the Chinese stock markets are unsurprisingly suffering from selling pressure. If the plenum's resolutions on economic reforms and economic stimulus are disappointing, the Chinese stock markets are likely to come under renewed pressure. We remain broadly diversified and continue to focus on the Swiss, US and European equity markets and maintain a low allocation to emerging markets.
The SNB has countered the strength of the CHF by cutting interest rates in order to fulfil its monetary policy mandate. The trade-weighted USD index is holding close to the highs of the past eight months. The latest inflation and consumption data in the US indicate that inflationary pressure is likely to ease further, making interest rate cuts in the US - should this trend continue - a realistic prospect towards the end of the year. The yen weakened further against the USD - the USD/JPY currency pair broke through the 160 mark - an exchange rate level last seen in 1990. The weakening of the yen in this currency pair has thus cumulated to over 12%. This should please export-oriented companies. The longer the yen depreciation continues, the more likely it is that the BOJ will intervene. The uncertainty surrounding France's new elections led to significant selling pressure on French government bonds from 10 June. The spread (yield difference) between ten-year French bonds and German Bunds almost doubled to just over 80 basis points within a week. The yield differential should normalise again after the elections (and naturally depending on the outcome) - if history holds true.
We are sticking to our stance. This is because the US economy is currently still on a solid footing, albeit with declining momentum. The declining momentum has been evident in recent weeks and months in the development of the labour market and the consumer. Rising default rates for various types of consumer credit (as early as the end of 2023) and historically high interest rates on loans (credit cards). The labour market is also gradually returning to balance and it can be assumed that the labour market has passed its peak and the historically low unemployment rate could now gradually reverse. In preparation for a slowdown in growth momentum with accompanying interest rate cuts in the USA, we are now paying greater tactical attention to government bonds in the portfolio context. Our long-term preference is for real assets, which should have a high weighting in the portfolio. We therefore remain on course and are cautiously positive overall for the near future. We remain broadly diversified in our investments. We are prepared for a potential slowdown in growth and at the same time are focusing on the long-term strategy with foresight.