Investing in August: Neutral outlook for global equities

Investing in August: Our forecast in brief 

Credit Suisse's perspective on economic and financial market developments over the short- to medium-term and their implications for investors. The view on global equities is neutral and Swiss equities are underweighted.  

Preference for US equities continues

In light of their strong performance in recent weeks, we are neutralizing our tactical overweight in global equities, but continue to hold a positive view of this asset class. We still prefer US equities; we would now underweight Swiss equities due to their high valuation.

Our view on global bonds remains neutral. We uphold our preference for emerging market bonds in hard currency, as well as global high-yield bonds, but favor shorter maturities. In the remaining asset classes as well, we are keeping to the long-term strategic weighting.

Economy: The sun is setting over the Swiss labor market

Global economic growth is likely to remain weak for the time being. Until recently, the Swiss labor market was booming, but the high point of employment growth appears to be a thing of the past. Seasonal unemployment has been increasing slightly since March 2019, after dropping continually since mid-2016. Accordingly, consumer opinion on job security has become less optimistic, but remains positive in a long-term comparison. Given the sluggish industrial developments, the labor market is likely to stagnate further in the months ahead.

Development of key rates

Labor market expectations somewhat less optimistic

Survey responses by consumers on job security

Source: State Secretariat for Economic Affairs, Credit Suisse

Last data point: Q2 2019

Bonds: Major central banks are cutting interest rates

We expect that the Fed and the European Central Bank will cut interest rates – thus the key rate may have reached its highest point again. In light thereof, it is more likely that the Swiss National Bank will cut its key rate as well. There is definitely room to maneuver.

However, the Swiss National Bank is likely to lower the interest rate only if the appreciation pressure on the Swiss franc increased to such an extent that even possible interventions in the foreign exchange market could not reduce it.

euro franc exchange rate compared with economic data

Key rates may have already reached their high point

Key rates of the central banks, in %

Source: Bloomberg, Credit Suisse

Last data point: June 2019

Monetary policy: An uncertain factor for the euro and the Swiss franc

While we anticipate interest rate cuts in the euro zone, we do not expect any in Switzerland for now. This combination may continue to put pressure on the euro/Swiss franc exchange rate. However, if the appreciation pressure on the CHF increases too much, the Swiss National Bank is likely to try and offset this pressure by intervening in the foreign exchange market again. In the medium term, we expect a slight recovery of the euro, especially if economic data from the euro zone improves only slightly.

value swiss equities and earnings per share

Positive economic data would boost the euro

Source: Thomson Reuters Datastream, Credit Suisse

Last data point: July 15, 2019

Equities: Swiss equities now underweight

In the softening economic environment, combined with much lower bond yields, the defensive Swiss equity market has performed amazingly well and left the global equity markets in its wake. However, this has also meant higher valuations, which is why we are now underweighting Swiss equities in the global portfolio.

In turn, we are raising the euro zone equities to neutral, because we can see early signs of economic stabilization, and many negative factors appear to have been priced in already. Our preference for US equities remains unchanged.

Gold price and real return

Swiss equities are highly valued

Source: Thomson Reuters Datastream, Credit Suisse

Last data point: July 10, 2019

Commodities: Gold's potential limited for the short term

Declining real interest rates in the US and expectations of further quantitative easing measures by the Fed have recently driven gold to the highest levels in years. While gold is good for diversification in today's uncertain environment, we are somewhat cautious at least for the short term, especially since the price expectations now seem excessive.

However, oil markets are enjoying a strong summer season after a weak phase last month. The latest decision by OPEC to further decrease production, along with tensions in the Gulf region, are likely to keep prices higher.

Mortgage interest rate forecasts Switzerland

Upside potential of gold limited at present

Source: Bloomberg, Credit Suisse

Last data point: July 15, 2019

Real estate: mortgage interest rates at new lows

The interest rates for Fix mortgages have been falling again since the fourth quarter of 2018 and recently reached a new all-time low. We do not expect an increase in the SNB's key interest rates until after the end of 2020, and depending on global developments, they may even decrease.

The interest rates for Flex rollover mortgages are likely to remain at their all-time low for the next twelve months in any case. A slight increase in the Fix mortgage interest rates by 20 to 35 basis points is more likely, because the interest rate curve is very flat at the moment.


Little change in mortgage interest rates expected

Interest rates for new mortgages, in %

Source: Credit Suisse

Last data point: July 15, 2019

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