06 / 22


The environment remained challenging. Uncertainty is heightened due to high inflation rates and interest rate hikes by central banks on the one hand and geopolitical tensions on the other. The dominant theme for the financial markets is the smoldering risk of stagflation. An earnings recession seems more likely than just a few months ago. The analyst community has not yet adjusted its earnings expectations to a potential recession. Today, we do not expect a sharp recession like the one in the wake of the financial crisis and assign a higher probability to a technical recession. Central banks have recognized the risks of hot inflation and, depending on the region, have already taken action, while others seem to be still gearing up for the fight. From a global perspective, the starting positions and thus the measures taken by central banks could not be more different. While the entire world is confronted with markedly higher commodity prices, the notoriously high energy prices - which are, among other things, a strong driver of inflation - pose a considerable growth risk (see FOKUS). Germany is already forced to prepare for a gas crisis. The growth risks predominate in the Governing Council. The ECB has been correspondingly hesitant - it has not yet raised interest rates. Decisions have already been taken to reinvest the pandemic support program, which expires today, in a new bond-buying program. So far, however, no details have been released on the me-chanism and the volume. The aim is to avoid a fragmentation of the euro zone and to keep the financing costs for the ailing southern countries in check. A quasi-quantitative easing, initially on a homeopathic scale, which could relatively quickly lead to a yield curve control similar to Japan, should growth drop dramatically in the wake of an escalation in Ukraine and gas supplies from Russia. This is in contrast to the SNB, which this month surprisingly raised interest rates by 0.50% percentage points. The expectation of market participants was that the SNB would again give way to the ECB for monetary policy steps. The Fed took decisive action in the fight for a lower price level and even raised the key interest rate by 0.75 percentage points. In doing so, it is very consciously accepting a drag on growth and an increase in the unemployment rate with the aim of restoring equilibrium in the labor market and bringing supply and demand back into balance. There should be no doubt about the Fed's determination for the coming meetings. In stark contrast to this is the PBOC in China. It is taking measures coordinated with the government to counteract the growth slowdown with loose monetary policy. At the same time, fiscal policy has been increasingly relaxed recently. The central government is sticking to its growth targets and is talking specifically about infrastructure investment to achieve them. China is thus bridging the gap between its zero-covid policy and simultaneous growth stimulation at a relatively low inflation rate. The purchasing managers' indices published the day before yesterday also point to an increase in growth. The index for the manufacturing sector rose again in June to an expansionary level. The index for the service sector (including the construction sector) even rose to 54.7, the highest level in over a year. The upcoming 20th Party Congress in the fall is also likely to produce new economic support measures. Until then, further monetary easing measures are to be expected.

Equity Markets

The sell-off accentuated again in June. The global equity market MSCI World lost -9.1% in CHF in June. European indices recorded the biggest losses with declines between -11% and -15% in CHF or -8% to -13% in local currency. Inflationary pressures and the associated currency collapse are clearly evident in individual emerging markets such as Brazil's IBOVESPA. The index loses -19.8% in the reporting month (-11.5% in BRL). The SMI loses -7.5% in June. In strong global contrast, China's leading stock markets posted gains of between +2.5% and +9.4% in CHF terms. As the environment is likely to remain uncertain for the coming period, high volatility must continue to be expected - especially in view of the still high earnings expectations.

Interest Rates

Growth concerns and the accompanying flight to safety sent yields on two-year German government bonds plummeting 25 basis points to 0.76% - the sharpest decline since March 17, 2008. At the same time, spreads on EUR investment grade bonds rose to over 2%, approaching crisis levels. With one exception, such high risk premiums on the currency bloc's safest corporate bonds were only recorded during the global financial crisis, the sovereign debt crisis in the euro area and the outbreak of the Corona pandemic. In general, yield curves are very flat. In the USA in particular, the curve shows a sharp flattening from around two years onwards - a reflection of the uncertain growth outlook.

Currencies / Commodities

The SNB's surprise move to raise interest rates caused the CHF to strengthen against the major currencies. The EURCHF exchange rate even fell below parity on June 29. The trade-weighted USD index DXY remained stable on a monthly basis against the weak currencies of trading partners such as EUR, GBP or JPY. The uncertain economic outlook was also reflected in commodity prices. With the exception of energy, most industrial metals and agricultural commodities fell back to their February price levels or even fell below them in some cases.


In our view, a profit recession is a likely scenario. Overall, stagflation risks have increased. The growth outlook is likely to depend to a large extent on inflation developments, the gas crisis in Europe and monetary policy (especially that of the Fed). If the US Federal Reserve manages to bring about a slowdown in growth without triggering a sustained recession, the US economy is likely to be in a much more stable position than in Europe. The path for Europe is less certain because a smoldering gas emergency could paralyze large parts of the economy and place a significant burden on private households. The economic policies of the individual countries and the monetary policy of the ECB must counter these risks with very targeted measures. This is a difficult task that is likely to keep the old continent busy for a while yet. We are much more optimistic about Chinese equities due to low valuations and a potential stabilization of growth in the coming months. The environment will continue to be dominated by the issues of inflation, interest rate hikes, supply chains and inventories, which is why increased portfolio volatility is to be expected in the future as well. In our investment policy, we have taken measures to counteract this and have made the asset allocation more defensive and robust. At the same time, we are maintaining an underweighted equity allocation.


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