Same player, still playing

Inflation has been the key driver of financial markets for 2 years now. The fall in price dynamics has led to a positive forst half for all asset classes except commodities.

Inflation falls in anticipation of recession

The fall in inflation that began in late summer 2022 is continuing at the same pace in 2023. The US central bank's policy seems to be having an effect, with annual price rises falling from 9.1% to 4%. However, the FED still needs to reach 2% to meet its targets.

Un Inflation trend (%)

In addition to a restrictive monetary policy, the slowdown in economic activity explains a large part of the fall in inflation expectations. Both confidence indicators and manufacturing indicators (Richmond and PMI, for example) have moved back into negative territory in recent months. This is weighing on employment, wages and prices, leading to a fall in inflation.

Manufacturing indicators

In the usual drama of American politics, the debt ceiling was raised in May after weeks of discussion and tension in Washington. The Democrats managed to leave themselves until the end of the Biden presidency without further negotiation against a backdrop of major government debt renewal. In addition, the twin US deficits (current account and fiscal) improved significantly over the year. Despite this, the debt maturities to be renewed and the rise in interest rates could be the undoing of this improvement. This improvement should be treated with caution, since the United States still spends more than it earns.

Twin US Deficit

Easing interest rates

In a sign of the recession expected by the bond market, the slope of the US yield curve (the difference between long-term and short-term rates) is very largely negative. In other words, long-term interest rates are lower than short-term rates, showing how little confidence there is in the future.

Slope of the US yield curve

The better inflation figures have had a direct impact on interest rates, which stopped rising almost 9 months ago. For the Swiss 10-year interbank rate, the 2% mark may not be breached.

Swiss 10-year interbank rates in 2023 (%)

The environment of higher interest rates is leading asset managers to consider a lesser underweighting of bonds. New issues are offering attractive yields, making it possible to restore a coherent risk/return ratio.

Change in SBI in 2023

Bond performance will benefit from this easing in interest rates over 2023, rising by almost 3%.

Swiss property market in 2023

The property market, meanwhile, is lagging behind, stagnating in the first half of the year. Demand for property remains strong against a favourable demographic backdrop, and supply is very likely to fall as pension funds are already allocating large sums to property. The second half of the year will largely depend on interest rate trends.

Rebound in equities

Easing inflation and interest rates will drive equities higher in the first 6 months of 2023. The markets that suffered the most in 2022 are those that will rebound the most in 2023, with the Nasdaq and technology stocks the big winners.

Trends in the main equity indices

Switzerland lags behind other markets because of the composition of its index, which is geared towards large consumer and pharmaceutical stocks.

Change in SMI in 2023

The takeover of Crédit Suisse in March 2023 was the highlight of the year for the Swiss market. The stock was delisted and merged with that of UBS on 12 March. After a performance year of -66% in 2022, CS shareholders are reliving a similar year. Kuehne Nagel International SA (logistics) will replace CS in the SMI index in the autumn.

Construction stocks are benefiting from the dynamism of Asian countries, and luxury goods stocks from changes in population and consumption patterns.

Performance of the main SMI stocks

Safe-haven year for the CHF and falling commodity prices

In a year when all asset classes are positive, we generally expect the CHF to have a mediocre year. This is not the case in 2023. The CHF is acting as a safe haven even though risk remains low.

Currency movements against CHF

The slowdown in rate rises in the United States has had a direct impact on the USD, which is now below 0.90 against the CHF.

USD/CHF exchange rate in 2023

Commodities are having a difficult year. Oil is trading at around $70 a barrel, a far cry from last year's levels. The economic slowdown obviously explains this fall.

Oil prices in 2023

After a very good start to the year, gold has lost ground in recent weeks. Gold has traditionally traded inversely to the US dollar, so we should remain optimistic about this commodity.

Gold prices in 2023

After a very good start to the year, gold has lost ground in recent weeks. Gold has traditionally traded inversely to the US dollar, so we should remain optimistic about this commodity.