The weak seasonality in September was once again confirmed and equity markets lost ground. Following the peak in July, the annual performance now stands at around 10% (MSCI World, calculated in CHF). In any case, it is not the worries about growth that are negative drivers, but rather further increasing bond returns given the narrative of "higher for longer" currently espoused by the central banks. In view of this, any interest rate cuts in the coming year are likely to be significantly lower than previously announced.
Bond investors are also worried about the sharp increase in the oil price, now up to USD 95 a barrel, which is again stoking inflation. However, the clearly positive fiscal stimulus of the United States (8.5% primary deficit), which is as high as during the financial crisis of 2008, is now set to retreat, alleviating the upward pressure on yields.
Keeping up the defence
The prospect of longer-lasting high interest rates increases the risk of a recession. In turn, this puts pressure on equities. In this difficult environment, we remain defensive, favouring money market bonds, government bonds, catastrophe bonds and exchange-traded Swiss real estate funds over equities and corporate bonds. Although in currencies we continue to favour the US dollar against the Swiss franc, we are currently recouping some of the profit (+5% since the beginning of August).