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Economic and Market Report

U-TURN IN INTEREST RATES?

The latest actions by central banks are indeed astonishing. On 8 June 2024, the Neue Zürcher Zeitung wrote: “It rarely happens, for once the Europeans are ahead of the Americans”, citing the interest rate cuts by the Swiss National Bank and the European Central Bank. To make the connection clearer, it was the Swiss National Bank that was the first major central bank to announce an imminent turnaround, on 21 March 2024.

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CORPORATE QUANTITATIVE EASING?

With regard to short- and medium-term expectations, most forecasts can be described as rather pessimistic. We believe that they can neither be considered promising nor relatively coherent. In this EMR, we will focus on the average developments of various stock indices in order to derive a likely, realistic outlook.

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INFLATION AND PRODUCTIVITY

WHICH STATEMENT IS TRUE?

Inflation is currently assumed to be the most deterministic factor?

Demand management is the most important determining factor?

Suppls management is the most deterministic factor?

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WHERE ARE THE STOCK MARKETS HEADED?

Most forecasts can be characterized as rather pessimistic, as far as short- and medium-term expectations are concerned. Therefore, they can be considered somewhat unpromising and relatively incoherent. In this EMR we will focus on the average performance of several equity indices to try to define a likely outlook.

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WHAT DO THE DATA SUGGEST?

The frequent repetition of comments – in the media – suggests that economic developments should be reasonably consistent from country to country. The charts, in this EMR, raise the question: What can be inferred from the performance of Swiss and US GDP for the respective equity indices and currencies, in the current uncertain and controversial environment? What follows is what we presume to know.

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PAST = FUTURE?

Recent developments show on the financial markets that hope and fears are not and cannot be the only tools explaining their performance. Consequently, in this EMR we focus on the performance of selected equity indices. In addition, the environment continues to be characterized by absurd and unacceptable armed conflicts and other shocks that could shake the world.

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Outlook 2024

Last year saw Russia’s much-publicized military misdeeds in Ukraine and the war in the Middle East, as well as international power struggles in the technology sector. In addition, a new difficulty emerged, namely the “closure” of the Suez Canal. Shipping companies have faced longer delivery times and thus increased costs for Asia-Europe trade through the Cape of Good Hope at the southern tip of Africa.

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Turn of the Year 2023 -2024

Examining the developments of the SPI (Swiss Performance Index) and the DJIA Index e.g., for the last four years, both on the end of month and on a monthly average basis, as implicitly shown in the following charts, is indeed highly revealing. What can be deduced from the following charts is here the following.

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Change is in the Air

It is well known that the IMF has issued a specific warning, namely that “financing the fight against climate change, only by means of incentives, seriously risks putting states” budgets in crisis. The IMF warning makes explicit reference to competition in the context of the energy transition campaign, and in particular to the U.S. Inflation Reduction Act (IRA), of August 16, 2022, which in hindsight has much more to do with fighting against inflation than with climate change.

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It doesn’t have to be that way

Assessing the main determinants of economic developments has become extremely difficult, both in terms of duration and cyclical importance. As repeatedly pointed out in previous EMRs, we would like to state once again that the available long-term data, e.g., those on U.S. GDP, really seem to support our view that the outlook is not primarily as expressed by main stream analysts.

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