Investing in September: Our forecast in brief

Investing in September: Our forecast in brief

Credit Suisse gives its perspective on economic and financial market developments over the short to medium term and looks at the implications for investors. In recent weeks, investor sentiment has brightened somewhat thanks to the recovery in the stock markets. It remains uncertain whether the price collapse has been overcome. Forecasts on economic growth are clearer: This is expected to be only 1 percent in 2023.

Weak growth in the financial markets requires risk reduction

The stock markets have rallied strongly in recent weeks, and investor sentiment has improved. The fear, however, is that the upward trend could be short-lived. The economic outlook has further deteriorated and is likely to hit corporate profits in the coming quarters. Monetary easing by the Federal Reserve (Fed) to counter weak growth is unlikely. Although inflation seems to have passed its peak, it remains far too high. Credit Suisse is therefore reducing risk in its portfolios by unwinding its stock overweighting.

Economy: The gas crisis is affecting Switzerland too

Current inflation levels are reducing household incomes and thus dampening consumer confidence – which is denting demand. The outlook for most companies is also unpromising, as financing conditions are worsening, and recession fears are impacting sentiment. Global gross domestic product (GDP) is expected to grow by only 1.7 percent next year, following 2.7 percent this year. Moreover, the euro zone and the UK are in danger of sliding into recession.

Although Switzerland is less vulnerable to a gas shortage than its European neighbors, it is far from immune to price increases and rationing. If gas supplies from Russia are halted completely or the price of gas remains permanently high, production outages are probable. Irrespective of the further developments on the gas market, the export industry is likely to be impacted by the economic downturn in the euro zone in the near future. Accordingly, economic growth of only 1 percent is expected in Switzerland in the coming year.

Economy: Swiss gas consumption is lower than that of Germany

Switzerland consumes less gas than Germany

Source: Federal Office of Energy (BFE), German Federal Statistical Office, German Environment Agency, Credit Suisse

Interest: Central banks maintain their tightening course

In the US, inflation has probably peaked. However, the tense situation in the labor and residential property markets should ensure that it remains above the 3 percent mark at least until the end of 2023. In Europe, inflation is still on the rise. Accordingly, it is expected that the respective central banks will stick to their rate hikes. In Switzerland, too, the central bank is expected to raise the policy rate further. It should be positive again in September for the first time in around eight years.

Interest rates and bonds: Rising policy rates

Policy rates continue to rise

Source: Datastream, Credit Suisse
Last data point: July 2022; Credit Suisse forecasts since then

Currencies: The Swiss franc is appreciating against the euro

Higher inflation and increased economic risk in the euro zone pushed the euro down against the Swiss franc in the second half of August. The EUR/CHF exchange rate broke through parity, i.e., the point at which one euro corresponds to one Swiss franc. The exchange rate has settled at 0.97. A reversal of the Swiss franc's strengthening trend is not expected for the time being. The "safe haven" nature of the Swiss franc thus represents an advantage in the currently difficult global economic environment.

Currencies: The Swiss franc is growing stronger

Financial markets: The Swiss franc is growing stronger

Source: Bloomberg, Credit Suisse
Last data point: 12.08.2022

Equities: Reduction of the equity component after recovery

Stock markets have recovered significantly in recent weeks, and investor sentiment has also brightened somewhat. The markets now seem to be comparatively optimistic again, but the outlook for the economy and thus also for company profits is slowly clouding over. Accordingly, Credit Suisse has recently reduced its equity holding. In the developed countries, US equities continue to be preferred, while China is the emerging market favorite.

Equities: Investor sentiment is recovering from low levels

Investing: Investor sentiment is recovering from low levels

Source: Refinitiv, Credit Suisse
Last data point: 11.08.2022

Commodities: Markets remain unsettled

The raw material indices have declined overall in recent weeks. A seasonal peak in the oil market and growth worries have led to a fall in oil prices. Meanwhile, gas and electricity prices have continued to rise, and the supply situation remains extremely tight and fragile. From an inflation perspective, the recent fall in agricultural prices is likely to help, with central banks continuing to hike interest rates. This, in turn, is reducing the potential for a rise in the price of gold.

Commodities: Markets are seeing falling oil prices

Financial markets: Oil prices trend a little lower

Source: Bloomberg, Credit Suisse
Last data point: 12.08.2022

Real estate: High demand for housing leads to rising rents

All rental price indices are currently rising because construction activity is declining, while demand is high due to the economic situation and immigration. Even the rents of apartments offered online, which were on a downtrend for the last five years, are increasing. By contrast, tenants with existing contracts have not been hit by the upward trend so far, except with respect to their ancillary costs. However, from the end of 2023, they can expect an increase in the reference interest rate and thus a rise in net rents of up to 3 percent.

Real estate: Rental prices on the Swiss real estate market are rising

Rental prices on the Swiss real estate market are rising

Source: Swiss Federal Statistical Office (BFS), Wüest Partner, Credit Suisse
Last data point: Q2 2022

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