07 / 21


Stock markets around the world performed very differently in July. Emerging markets were particularly weak, especially the Chinese markets, which plummeted under increasing regulation. The latest regulation concerns China's education system - effectively excluding new private companies from the market and forcing existing ones into non-profit frameworks. These measures are intended to support the middle class in China (part of the five-year plan). Previously, companies with large amounts of data had been targeted by the authorities. The Chinese government is apparently concerned about data security towards the west, especially the USA. The meetings of the European as well as the US central banks did not bring any significant change in the very expansive policy. Jerome Powell emphasized that the U.S. Federal Reserve is still far from raising interest rates. The ECB positioned monetary policy more expansively and will hold back on rate hikes as long as the inflation forecast does not reach the desired target of 2%. Concerns about the spread of the delta variant of the corona virus resulted in higher volatility levels, while overall economic data was somewhat weaker than expected. For example, U.S. economic growth of 6.4% on an annualized basis in Q2 missed the expectation of 8.4%.

By the end of the month, gains remained in only a few markets. Among others, it was the US markets that closed near a new all-time high.

Equity Markets

Despite the good earnings reports, the world markets closed very mixed. Chinese markets experienced setbacks of up to 10%. Interestingly, speculation on credit in the Chinese markets increased at the same time - which does not suggest a classic bottom in the market. Japan's market could not resist this negative sentiment: The Nikkei 225 lost over 5%. In Europe and the USA, on the other hand, the picture was slightly friendlier. The Swiss stock market SMI climbed by 1.5%, while the EuroStoxx 50 gained 0.6%. The US markets rose between 1 and 3%. The earnings season surprised despite already high expectations. Earnings expectations were exceeded by almost a fifth in the USA and by almost a third in Europe. A similarly good ratio was also seen on the Japanese stock market. In general, many companies noted inflation as a potentially negative factor in their first-quarter earnings reports (see FOCUS). It will be interesting to see whether this trend continues in Q2. Thanks to the strong earnings growth, valuations are coming back into perspective somewhat. For the S&P500, the estimated P/E ratio is still around 21, which is still above the five-year (18) and ten-year (16) average. The European stock market is currently trading at 17 times estimated earnings, which is above the 10-year average of just under 14. For the U.S. as well as the European stock market, the analysts' consensus is for price gains of 10 to 11% over the next 12 months.

Interest Rates

Interest rate markets reflected the weakening growth momentum of the global economy. At the end of the month, 10-year US Treasuries were yielding just under 1.19%. The current level of interest rates is due not only to the expected slowdown in economic growth, but also to the fact that the central bank continues to act very cautiously. Real interest rates (nominal interest rates minus expected inflation) even reached an all-time low (-1.17%) for 10-year inflation-linked Treasuries.

Currencies & Commodities

A weak dollar resulted in bullish commodity prices. Oil, the fuel of the economy, suffered from strong fluctuations due to the decision of the OPEC countries to increase production quotas and the uncertainty surrounding the delta variant of the corona virus. By contrast, the sharp drop in oil inventories in the USA had a supporting effect. The price of iron fell sharply after the Chinese government stepped up its rhetoric against higher prices. The Swiss franc bullish against all major G10 currencies.


The declining dynamics in the stock markets now seem to be slowly heralding a consolidation, which continues to be in line with our expectations. The markets have been showing signs of overheating for some time, accompanied by one-sided investor positioning and more euphoric sentiment indicators. This burden now needs to be digested - with the seasonally weakest months of August and September approaching, we continue to expect higher volatility and selective setbacks on the equity markets. On the other hand, the global growth outlook remains positive while ultra-expansionary monetary policy continues, which should create buying opportunities. Central banks have made it clear in their communications that they will remain very patient and will allow inflation to overshoot if necessary.

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