The Fed raises key rates, thus reversing the monetary trend. On the Swiss stock exchanges, the month began unstable, and in the current season, profits are lacking in surprises.
Unstable beginning of May. “In May, do what you want,” as the good old saying goes. However, this is not what we see in the stock market. Indeed, the Swiss market index (SMI) was as volatile as in previous weeks, due to a “rapid collapse” (a sharp drop in prices that lasted only a few minutes), probably due to a trader in Citigroup, as well as the US bid . The crash caused the leading Swiss index to fall below 12,000 points, despite an attempt to recover after the FOMC meeting in the second half of the week. On Friday morning, the SMI recorded a weekly decline of 2.1%. Therefore, we recommend investors to take a defensive stance at the moment, given the risks of stagflation and weak seasonal months, as well as a slightly high cash ratio at the moment from investment tactics. This allows them to reduce risk while taking advantage of market opportunities.
A moment of respite on the Nasdaq technology exchange. After its recent fall into hell, the US technology stock index Nasdaq 100 fluctuated this week around the 13,000-point mark. However, investors should not forget that the market environment is still far from favorable for Amazon et Cie. Indeed, the sector suffers from problems in production and supply chains, as well as from the Fed’s more restrictive monetary policy. Moreover, consumers are no longer willing to spend.
“Hawk” Fed to fly. US central banks have decided to raise the key rate by 50 basis points at the last FOMC meeting to offset price pressures. The range is now from 0.75 to 1.00%. In addition, the Fed intends to reduce its balance by almost nine trillion dollars from 1is June, and thus withdraw liquidity from the market. Fed Chairman Jerome Powell hinted at a further increase of 5 basis points for future monetary policy meetings. The Bank of England (BoE) also adopted a rate increase of 25 basis points to 1.00% at its May meeting, the fourth consecutive increase. Thus, the key English rate has reached a level not seen since February 2009.
Strong exercise results. Adecco, a human resources provider, grew faster than year-on-year at the beginning of the year, and its business sector was a good indicator of economic development due to its cyclical nature. Moreover, the company is optimistic about the second quarter. The same applies to the Oerlikon industrial group and the manufacturer of plumbing fixtures Geberit. The only downside to the latter is the cost pressure at the production level, which burdens the margin. Meanwhile, computer accessories maker Logitech ended fiscal year 2021/22 with record sales, and also canceled its new year due to economic uncertainty. His shares were hit, sometimes falling 6%. Swiss reinsurer also continues to suffer, ending the spring quarter with $ 248 million in losses blamed on the war in Ukraine, financial market instability and the cost of a coronavirus pandemic.
Inflation in Switzerland remains low. Whether it’s our favorite pasta, chocolate croissant or yogurt: inflation is not only weighing on our wallets due to rising commodity prices, but, above all, raising the price of gasoline. It is clear, however, that the pressure on prices in Switzerland is low compared to the rest of the world. And from this point of view, nothing has changed in April: with a slight increase of 0.1% (from 2.4 to 2.5%), inflation has reached our forecast for the whole of 2022.
Schedule of the week
The interest rate on 10-year US government bonds is approaching 3.0% – an increase of at least 1.5% since the beginning of the year. It has not reached that level since December 2018, just before US Federal Reserve Chairman Jerome Powell relinquished his restrictive stance amid escalating trade disputes between the United States and China. Therefore, long-term interest rates already largely involve a change in monetary policy.
THE GREAT PLAN
Bad news for beer lovers. German brewers’ federations expect beer prices to rise to 30% by the end of the year. Drinking beer would be a real expensive pleasure if they were right.
Zurich Airport. Zurich Airport on May 11 will publish data on air traffic in April. A comparison with COVID-19 data will be particularly interesting.