Investing in June: 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 outlook for the global economy and equities – and now also for commodities – is positive. Economic growth should be above average in the second half of the year.

We confirm our overweight in global equities and, in addition to emerging markets, have now also turned our attention to the UK. We also recommend energy, financial, technology, and telecoms equities, but remain cautious on industrial stocks.

In the bonds segment, we expect to see weak performance from government bonds and therefore prefer selected emerging market bonds in local currency and convertible bonds. Last but not least, we are now positive on commodities (especially industrial metals).

Economic situation: Swiss industry running at close to capacity

The pace of growth in the world economy may have slowed a little recently, with cold winter weather dragging down economic activity on both sides of the Atlantic. Nevertheless, the outlook remains positive. Household consumption should be lively thanks to rising wages and the improved labor market situation, and firms are investing again.

The Purchasing Managers' Index (PMI) for Switzerland is clearly in expansive mood, reflecting a solid industrial economy. A detailed look at the PMI survey already reveals signs of bottlenecks. For example, purchase prices are rising, and it has rarely taken so long for ordered goods to arrive. As a result, companies hired more staff and increased order volumes and inventories in April. The high level of capacity utilization should also give a boost to investment activity.


Swiss economy: clear signs of scarcity

Source:, Credit Suisse

Interest rates: SNB is ahead of the ECB on the path to normalization

The US Federal Reserve (Fed) has a clear lead on the other central banks in normalizing its monetary policy. It is gradually reducing its balance sheet and raising interest rates. Although the European Central Bank (ECB) has cut back on balance sheet growth, it looks unlikely to end its bond-buying program until December and will probably wait until mid-2019 to start raising interest rates.

It has been almost a year since the Swiss National Bank (SNB) stopped actively expanding its balance sheet. We expect to see the first interest rate rise in March 2019.


Only the ECB and BoJ are still growing their balance sheets

Source: Datastream, Credit Suisse

Currencies: strength of the dollar likely to be short-lived

Better-than-expected economic data in the US as compared with Europe has recently strengthened the US dollar. However, we expect to see economic activity on both sides of the Atlantic come back into line again in the near future. Moreover, the market is expecting to see two to three interest rate rises in the US, while interest rate expectations in Europe remain subdued. A shift in expectations could boost the euro.

At the same time, the growing US budget deficit is creating something of a headwind for the US dollar. We expect the US dollar/Swiss franc rate to fall back to 0.94 over 12 months.


Weaker economic momentum has impacted the euro

Source: Datastream, Credit Suisse

Equities: outlook remains positive overall

On the back of solid profit growth, equities worldwide recovered from their low for the year. The drivers behind this trend are the positive impact of the US tax reform and widespread strong revenue growth.

Within equities, we are retaining our focus on (Asian) emerging markets. In addition, we now also expect outperformance from the UK equity market as it is overweight in the financial and energy sectors and therefore strongly influenced by our preferred sectors.

growth-of-businesses-by-share index

Solid profit growth, even without tax effect

Source: Datastream, Credit Suisse

Commodities: cyclical commodities with further upside potential

Signs of a pick-up in economic activity, combined with geopolitical tensions, have led to a further rise in commodity prices. Energy prices have risen to new highs for the year because of the conflicts in the Middle East and the U.S.'s termination of the nuclear accord with Iran.

Even if there are no marked shortages in the oil market, uncertainty is likely to remain high for the time being. Commodity prices, and cyclical industrial metals in particular, should receive support from the upturn in industrial activity.


Robust growth environment supports commodities

Source: Bloomberg, PMIPremium, Credit Suisse

Real estate: prices for Swiss residential property continue to rise

In the first quarter of 2018, residential property prices rose by 3.0% year-on-year. However, price growth is still below the long-term average. The strongest growth was recorded around Zurich, Lucerne, Basel, Berne, and Lausanne.

Thanks to the favorable economic situation, low mortgage interest rates and declining construction activity, we expect the upward trend to continue in the coming quarters. However, this is likely to be slightly down on the most recent figures.


Prices for Swiss residential property have been rising since mid-2017

Source: Wüest Partner, Credit Suisse