Investing in July: 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 Swiss economy is slowly recovering from the collapse triggered by the lockdown. Equity markets as well have not fully exhausted their potential for a recovery.

Equities should be able to withstand political risks

Although stocks and corporate bonds have already recovered a lot of lost ground, we see even more potential in them. Political risks and renewed outbreaks of COVID-19 may trigger declines, but the economic recovery, the sustained fiscal and monetary policy stimulus, and the built-up investment demand should provide support. Suitable options for equity overweighting include not only the defensive Swiss home market but also German securities and commodities, which are receiving a boost from rebounding oil prices and the demand for precious metals caused by low interest rates.

Economy: The Swiss economy is recovering

While lockdowns are already being lifted in many places, finance ministries and central banks are stimulating their economies. So, the global economy is expected to experience an immediate and substantial recovery. However, the degree of economic activity will remain significantly below its pre-crisis level for the foreseeable future. First of all, the tendency of households to save their money is waning only gradually. Secondly, companies are hesitant to spend.

In Switzerland, the robust growth in pharmaceutical exports, the government's quick action, and the positive indicators of consumer spending are reasons to be confident. Accordingly, we are standing by our relatively optimistic forecast of a decline in Swiss gross domestic product (GDP) of 4% this year. The recovery is likely to proceed at a sluggish pace. GDP will not reach its level from the end of 2019 again until the end of 2021.

Consumer spending in Switzerland showing positive growth again

Consumer spending in Switzerland is picking up again

Number of times Swiss debit cards were used in retail stores in Switzerland and abroad, per week

Index: week of Jan. 6, 2020 = 100

Last data point: May 31, 2020

Sources: SIX BBS AG, Credit Suisse

Interest rates: SNB refusing to cut rates for time being

US Fed Chairman, Jerome Powell, says he is not even thinking about raising interest rates. Thus, increases in key rates will not be an issue for some time to come. Officials are not talking about cutting interest rates, either. The Swiss National Bank (SNB) ought to be leaving its key rate unchanged until further notice. Judging by yields on 10-year government bonds, the markets are assuming that interest rates around the world will hover around zero for the next few years.

Financial markets: Interest rates around the world diving near zero

Interest rates the world over are headed toward zero

Last data point: June 1, 2020

Sources: Bloomberg, Credit Suisse

Currencies: EU recovery fund strengthens the euro

Ever since the plans for an EU recovery fund were announced, the Swiss franc has also been trading lower against the euro. If the EU-specific political risks continue to decline and the global recovery lasts, this trend is expected to continue. We anticipate a EUR/CHF exchange rate of 1.11 in three months and 1.15 in twelve months. Should the Swiss franc come under upward pressure again contrary to this prediction, the SNB will boost the rate using foreign exchange intervention mechanisms.

Investing: Appreciation of euro against Swiss franc

Euro appreciating in value against Swiss franc

Last data point: June 15, 2020

Sources: Bloomberg, Credit Suisse

Equities: Swiss equities offer good positioning

Given the economic recovery, there is upside potential in cyclical equities. The previously negative view of industrials has been neutralized, and we are now rating German equities as attractive. At the same time, it is important to have a certain amount of stability in this market environment, which remains uncertain. That is why Swiss equities in particular and health care stocks are still interesting.

Swiss equities fluctuate less than the global index in times of crisis

Swiss equities perform comparatively well in crises

Last data point: June 15, 2020

Sources: Refinitiv, Credit Suisse

Commodities: Oil expected to take a break

Prices of cyclical commodities, first and foremost the price of oil, have recovered somewhat. It now appears that the price will remain stable for a while since the level of excess reserves remains pretty high. Additional cuts in production ought to help lower the excess supply. However, it is still uncertain how quickly demand will pick up. Even though gold has lost some of its momentum, it is performing well thanks to real interest rates being low. An uptick in inflation – even less likely at the moment – and a weaker US dollar would lend the price of gold an additional boost.

Financial markets: Price of oil recovering quickly

Oil price recovering rapidly following its decline

Last data point: June 15, 2020

Sources: Bloomberg, Credit Suisse

Real estate: COVID-19 taking a toll on rental apartment demand

Not even the rental apartment market can escape the effects of the coronavirus pandemic. On account of the temporary restriction on immigration, plus the slumps in consumer sentiment and the labor market, a steep decline of roughly 8,000 in annual additional demand for apartments is anticipated for 2020. That could cause accelerated growth in vacancies again; an estimated 2.9% of rental apartments are now sitting empty. That is the reason why downward pressure on rents is expected to increase outside downtown areas.

Investing: Temporarily less demand for rental apartments

Demand for rental apartments temporarily collapsing

Last data point: 2019: estimate, 2020/2021: forecast
Sources: Swiss Federal Statistical Office, Credit Suisse

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