The central banks are becoming ever
more data-dependent

Investment Policy, September 2023

The central banks are becoming ever more data-dependent

The global financial markets are increasingly anticipating a soft landing. In other words, while there is an expectation that the economy will slow down to some extent, a sharp downturn that would see a more marked decline is considered less likely. A soft landing could facilitate a fall in both US and Eurozone inflation towards the 3% or even 2.5% mark. While such a scenario would see inflation move closer to the central banks’ inflation target, it would still fall slightly short. The second scenario, namely a hard landing of the global economy, could allow for a more significant decline in inflation and bond yields. On the other hand, however, the impact of a hard landing on corporate earnings and thus also the equity space would be less positive. The central banks are therefore first waiting to see how the situation develops further, becoming even more data-dependent, as they put it, in the process. For the time being, we are maintaining our current positioning and our general focus on quality.  

The economic data coming out of the US continues to outshine the corresponding data in the Eurozone and China. Consumer sentiment has improved steadily since the turn of the year and sales in the retail sector have increased accordingly. In contrast, the manufacturing industry as well as the real estate and housing markets are proving to be considerably less dynamic and are posting weaker growth. In Europe, too, the manufacturing segment of the industrial economy is performing less well than the service sectors. For example, while tourism and hospitality are doing well, the picture for the chemical industry, with the exception of pharmaceuticals, is less rosy. Unemployment rates on both sides of the Atlantic remain low by historical standards. This isn’t the case in China, however, where there has been a marked rise in unemployment among those aged 16 to 24. The most recent economic data to come out of China has also disappointed once more. A decline in growth has been registered in the retail trade, which acts as a consumption indicator, and in terms of industrial production. Investment levels in China, both on an overall basis and in the real estate sector in particular, are also showing continued weakness. The interest rate cuts and support measures seen to date have had little impact in the Middle Kingdom.


Accordingly, emerging market equities, where China is the key heavyweight, have once again failed to live up to the high hopes pinned on them this year. Unlike most other banks, we were not overweight emerging market equities, instead overweighting US equities relative to the Eurozone. This has not only paid off for economic reasons, but also due to the earnings trends that have been observed thus far. US corporate results in the second quarter turned out better than expected thanks to good profit margins. While US profits did fall relative to the previous year, they only declined by 4% rather than by 9%. As is well known, 2022 was a strong earnings year due to higher oil prices, with this being especially true for energy stocks. Excluding the energy sector, US firms even succeeded in posting year-on-year earnings growth in the second quarter. Commodity prices, which were lower than in the previous year, also had an impact in Europe. A negative trend tended to be observed in the quarterly results of basic commodity and chemical firms, while the financial sector and food companies were able to report more positive figures. We are maintaining an overall focus on quality and are overweight both Swiss equities, which are generating an attractive total return this year thanks to, among other factors, the strength of the Swiss franc, and global high-quality stocks. Although our overweight position in cyber security and value stocks is somewhat less marked, both of these themes could pay off in the long term against the backdrop of growing demand.

The global financial markets are increasingly anticipating a soft landing in terms of economic growth.

Gérard Piasko, Chief Investment Officer


Market technical factors are currently playing a particularly prominent role in the US bond market. The prices of US government bonds, and especially those at the long end of the yield curve, are being negatively impacted by the increase in supply. The US Department of the Treasury announced a higher financing requirement than had previously been forecast (over USD 1.8 trillion), which means a greater supply of US government bonds relative to demand. This in turn led to a decline in the price of US bonds and a corresponding increase in yields, particularly in comparison to Swiss bonds. Our relative shift in favour of Swiss franc bonds in recent months has thus already borne fruit. Relative to other bonds, Swiss bonds are currently benefiting from lower wage growth and lower inflation than seen in other countries. This is related to the strong Swiss franc. We are maintaining our overweight position in short-dated domestic bonds versus global bonds, on the one hand, as well as our overweighting of corporate bonds relative to government bonds, on the other. 


Viewed over the short term, the US dollar has recently recovered somewhat against the Swiss franc. This recovery has come against the backdrop of higher US bond yields and interest rates relative to those in Switzerland. However, a longer-term comparison reveals that the US dollar has weakened in recent months and finds itself beneath the low of 2020. The euro has also depreciated against the Swiss franc this year. This should come as no surprise in light of the weakening EU economy in recent months. If this were to improve relative to the Swiss economy, the euro could recover somewhat once more. However, the euro’s direction of travel against the US dollar has traditionally also been important for how the single currency fares against the Swiss franc. Increased fluctuations in the euro to US dollar exchange rate are conceivable here, with these likely to occur within a range between 1.07 and 1.13, i.e. in line with the volatility seen over the past five years.


After the oil price was able to profit in recent weeks from the extension of the supply reduction by OPEC+ countries, it can be assumed that demand will once again gain in importance as a market factor. This means that, depending on economic developments, especially in the US, Europe and China, movements in the region of 5% to 10% should come as no surprise. As the Chinese economy is tending to disappoint at present and the US is performing more positively, fluctuations in both directions are conceivable. Although gold has performed well since the start of the year, it has technically ricocheted off the psychologically important mark of USD 2,000 per ounce. Viewed over a period of several years, there has been an uptrend in the gold price. However, US interest rates could act as a burden here. We are currently maintaining a neutral, strategic weighting in commodities, including with respect to gold.

Gérard Piasko

Gérard Piasko

Gérard Piasko is Chief Investment Officer and head of the investment committee of private bank Maerki Baumann & Co. AG. Before he was for many years Chief Investment Officer of Julius Baer, Sal. Oppenheim and Deutsche Bank.

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This publication is intended for information and marketing purposes only, and is not geared to the conclusion of a contract. It only contains the market and investment commentaries of Maerki Baumann & Co. AG and an assessment of selected financial instruments. Consequently, this publication does not constitute investment advice or a specific individual investment recommendation, and is not an offer for the purchase or sale of investment instruments. Maerki Baumann & Co. AG does not provide legal or tax advice. In addition, Maerki Baumann & Co. AG accepts no liability whatsoever for the content of this document; in particular, it does not accept any liability for losses of any kind, whether direct, indirect or incidental, which may be incurred as a result of using the information contained in this document and/or arising from the risks inherent in the financial markets.

Editorial deadline: 4 August 2023

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