As in March and May, the equity market suddenly rallied as government bond yields receded.
Recession fears have curbed the concomitant decline in stocks and bonds that developed during the first half of 2022. After several weeks of declines that sent the S&P 500 Index into bear market territory, stocks are showing a tangible rebound, aided by a decline in dollar yields and a reassessment of the outlook for monetary tightening. Like the rebound in March and again at the end of May, last week’s rally in equities is not well supported and could be a bear market rally.
A sustainable recovery in equities and bond markets will inevitably require a significant and lasting decline in inflation, which would allow the Fed and other Western central banks to conduct more friendly monetary policies. The materialization of this scenario requires a stabilization of commodity prices, especially energy prices, which have largely contributed to the surge in inflation. In this respect, the drop in of prices observed last week is a welcome development, provided that it is lasting.
The economic news in the US is marked by a sharp decline in the PMIs. The gauge for the manufacturing sector fell from 57 in May to 52.4 in June, while the index for services dropped from 53.6 to 51.6. Despite a modest recovery, the level of initial jobless claims still reflects a tight labor market, even though a few iconic companies, such as Tesla, have announced plans to reduce their workforces. In the residential real estate market, the median price of existing home sales reached a new high, but transaction volumes continue to decline in response to rising mortgage interest rates (now near 6% for a 30-year fixed rate loan) and rising construction costs for new homes.
The U.S. dollar yield curve has fallen significantly from the levels seen in mid-June. The yield on the 10-year T-Note fell back to around 3.15% after briefly approaching 3.5%. The decline in the yield on the 2-year T-Note from 3.4% to 3.1% reflects a downward revision of the outlook for interest rate hikes through 2024 (which does not rule out a hike near or above 3.5 % before the Fed reverses course, as happened in 1994/95 and which Fed Governor James Bullard aptly mentioned last week).
In Europe, the decline in the euro interest rate structure is even more pronounced. The yield on the German Bund has fallen by almost 40 basis points from 1.8% to 1.4% (before rebounding to around 1.5%). This decline is supported by numerous symptoms of slowing activity, such as the drop in PMIs (52 after 58.4 for the manufacturing sector, 51.3 after 53.7 for services) and Christine Lagarde’s reaffirmation that the ECB will only raise its key interest rate by 0.25% in July.
In the credit market, the widening of risk premia contradicts the renewed optimism expressed on Wall Street. The excess yields or spreads associated with corporate bonds are now close to 170 basis points on average for the “Investment Grade” segment and 580 basis points in the “High Yield” segment, both of which have been weakened by the emergence of recessionary risks that raise doubts about the sustainability of the rebound in equities that occurred last week.
Silicon Valley Bank (SVB), a micro chaos resolved while forgetting the macro risk
The implosion of small banks in the US generates immense confusion and a flight to safety.
2022 ANNUAL REPORT & INVITATION TO 2023 AGM
ONE swiss bank SA publishes its 2022 Annual Report, announces a dividend payment and notifies of the agenda for the 2023 Annual General Meeting.
Between realism and complacency
The disconnect between equities and bonds, which have been falling for a month, is widening further.
Le retour à la lucidité crée des opportunités
La violente correction obligataire survenue en février relance un thème d’investissement majeur pour 2023.
The market is now in tune with the Fed
Bond investors have finally bought into the roadmap outlined by the US central bank.
10th Annual WealthBriefing Swiss Awards 2023
We are thrilled to have won on 9 February 2023 the award for “Best Corporate Strategy Implementation” at the 10th Annual WealthBriefing Swiss Awards 2023.
Une bonne nouvelle plombe l’ambiance
La vigueur du marché du travail américain apporte de la crédibilité à la posture austère de Jerome Powell.
H2 and full-year 2022 financial results
After a challenging year in which global financial markets experienced unprecedented turmoil, we are pleased to report that ONE swiss bank’s financial turnaround is now complete.
The menu promises to be copious and digestible
Central banks have signalled their immediate plans, but the dessert is still a surprise.
La Fed est en phase d’approche
Le succès de la manœuvre d’atterrissage reste incertain, les risques de récession sont élevés.