Monthly Market Monitor
November 2024
Waiting for the election result
In a Nutshell
Our view on the markets
Equity markets around the world remained relatively resilient in October. Although the market’s uncertainty with regard to the outcome of the elections in the USA was not directly visible in stock prices, the elevated readings of volatility indices (VIX and VVIX) revealed a certain degree of tenseness on the part of market participants and indicate that hedging activity is underway. If no clear victor emerges on election night, a more volatile period on the equity market cannot be ruled out. Investors should keep their cool and should refrain from initiating “political trades” even once the fog has lifted.
Post-election US monetary policy
The US Federal Reserve this year has not let itself be deterred by the clamorous US presidential election race. Bucking Donald Trump’s criticism and his disdainful rhetoric toward central bank officials, the Fed implemented a big interest-rate cut in September instead of waiting until after the election (or for Trump’s blessing), demonstrating its independence. One can only hope that the Fed will be able to focus exclusively on its dual mandate of ensuring price stability and full employment if Donald Trump moves back into the White House next year.
Geopolitical Heatmap
There is no shortage of macroeconomic and geopolitical risks these days. With our heat map, we analytically examine the most important hot spots at regular intervals to gauge their probability of flaring up and to infer their potential implications for financial markets. This routine exercise frequently results in the realization that a risk is improbable, is already priced in or, if it does materialize, is relevant only to rather exotic assets and niche markets. Developments in the Middle East and in Ukraine are particularly in the spotlight right now.
Trump or Harris? – scenarios for Switzerland
Who will occupy the Oval Office next year? The political question of the year will likely be answered shortly or by January at the latest. But what are the potential implications of Donald Trump or Kamala Harris and their respective policies for businesses in Switzerland? Every four years, faraway US politics briefly gains prominence in entrepreneurs’ cabinet of worries. Does the upcoming US presidential election present an opportunity or a risk? Our speculative scenarios serve merely as food for thought because in the end things always turn out differently than one thinks they will.
A lot has changed in US election year 2024 compared to previous electoral campaigns, including the fact that the country’s swelling federal debt is no longer an issue on the hustings this time. This recently has prompted a number of think tanks all the more to examine the potential impacts of Donald Trump’s and Kamala Harris’s respective campaign platforms. The clear-cut conclusion is that the USA’s towering mountain of public debt will continue to grow at a rapid pace. Bloomberg Economics projects an increase in the federal debt load to 151% of GDP over the next ten years in the Trump scenario or to 130% under a Harris administration. These estimates fraught with a high degree of uncertainty presuppose a highly improbable full implementation of the respective election platforms and thus paint rather extreme scenarios. US taxpayers nonetheless have to hope that the election winner doesn’t also capture both chambers of Congress and that frugality soon returns to US fiscal policy. If it doesn’t, financial markets eventually will start to question the USA’s ability to service its debt obligations.
CBO Baseline Harris Trump
Growing mountain of debt… | …in every scenario
Chart of the Month
Macro Radar
Taking the pulse of economic activity
Post-election US monetary policy
The US Federal Reserve this year has not let itself be deterred by the clamorous US presidential election race. Contrary to Donald Trump’s criticism and his disdainful rhetoric toward central bank officials, the Fed implemented a big interest-rate cut in September instead of waiting until after the election (or for Trump’s blessing), demonstrating its independence. One can only hope that the Fed will be able to focus exclusively on its dual mandate of ensuring price stability and full employment if Donald Trump moves back into the White House next year. Trump has already let it be known that he would like to have some say on monetary policy in the near future. It remains to be seen if he will carry out his threat. The Fed first looks set to undertake another small rate cut right after Election Day. Economic data continue to point to a successful soft landing and to a gradual return of interest rates to normal.
Monetary-policy divergences
The Bank of Canada is lowering interest rates more swiftly and is currently the most aggressive central bank within the G10. In October it already undertook its fourth rate cut, slashing its policy rate by 50 basis points this time (and by a cumulative 125 basis points since the BoC’s pivot). But at 3.75% at present, the interest-rate level in Canada is still far too high. The country is suffering from anemic economic growth – per capita growth in Canada has been stagnating for a decade now. Inflation, meanwhile, has long since ceased to be a problem in Canada and threatens more to drop too low very soon. A series of further rate cuts will be necessary in the months ahead. The situation is hardly different than that these days also in the Eurozone. Weak economic activity also prompted the European Central Bank to lower its policy rate again in October, and it looks set to deliver yet another rate cut in December. The same goes for the Swiss National Bank, which would then already be back at a very low policy rate level of 0.75%.
Will the “traffic light” coalition ruin Germany through austerity?
Sluggish economic activity and a resulting drop-off in tax revenue have put a big hole in the German federal government’s budget for next year. Although Germany’s “debt brake” mechanism allows a certain amount of leeway in a situation of that kind, the ruling “traffic light” coalition nonetheless is stuck in a tight financial
corset. The International Monetary Fund is shaking its head in disbelief at this. It sees Germany in a comfortable position given its small public debt load. Germany is one of the few countries that can and should use its existing fiscal leeway to step up investment spending. The federal government’s “growth initiative” featuring 49 different stimulus measures aims to do exactly that, but has hardly convinced anyone thus far. The “traffic light” coalition really needs to put its shoulder to the wheel if it doesn’t want to get voted out of office a little less than a year from now.
Puzzling over and pinning hopes on China China’s economy expanded by only 4.6% in the third quarter, growing even more slowly than in the prior quarter (4.7%) and falling far short of the government’s 5% growth target. Market observers are still in disagreement about whether or not China experienced a “bazooka moment” in September. The colorful bouquet of measures aimed at stimulating economic activity, boosting sentiment, and levitating equity markets hasn’t yet convinced everyone. What’s been missing in particular thus far is details on a fiscal package worthy of that name that would induce a genuine burst of growth. A more accommodative monetary policy, such as through the renewed lowering of various key interest rates in October, is unlikely to be enough on its own to bring about a real turnaround.
The US Federal Reserve this year has not let itself be deterred by the clamorous US presidential election race.
Asset Allocation
Notes from the Investment Committee
Fixed Income
Sovereign bonds
Corporate bonds
Inflation-linked bonds
High-yield bonds
Emerging-market bonds
Insurance-linked bonds
Convertible bonds
Global
Europe
Microfinance UK
USA
Japan
Emerging markets
Alternative Assets
Gold
Duration Hedge funds
Currencies
US dollar
Swiss franc
Euro
British pound
Equities: Waiting for the election result
• Equity markets around the world remained relatively resilient in October. Although the market’s uncertainty with regard to the outcome of the elections in the USA was not directly visible in stock prices, the elevated readings of volatility indices (VIX and VVIX) revealed a certain degree of tenseness on the part of market participants and indicate that hedging activity is underway. On paper, a Trump 2.0 presidency appears to be the best scenario for the equity market, particularly in the event of a concurrent double victory in Congress, given the existing speculation that a tax cut would be forthcoming. However, it’s questionable whether a Trump rally would ensue because part of the advance laurels may already be priced in. Moreover, in contrast to Trump’s surprise 2016 election win at a time when investment ratios were low, this time market participants are heavily invested in the stock market, so there may be a dearth of new buyers. If no clear victor emerges on election night, a more volatile period on the equity market cannot be ruled out. Investors should keep their cool and should refrain from initiating “political trades” even once the fog has lifted.
• As has become customary by now, stock analysts have substantially cut their earnings estimates in the runup to the third-quarter reporting season. Projected aggregated third-quarter earnings growth for the companies in the S&P 500 index has fallen from Asset Allocation Monitor
Structured products
Private equity
Private credit
Infrastructure
Real estate
Scorecard
Macro
Monetary/fiscal policy
Corporate earnings
Valuation
Trend
Investor sentiment
+8% this past summer to around +4% at last look. A large number of upside earnings surprises can be expected again this time now that the bar has been lowered. As is so often the case, the outlook for the future merits more attention than the latest revenue and profit figures. Particular attention should be paid to the guidance from the Magnificent 7. Their earnings growth looks set to slow significantly in the quarters ahead, which would narrow their growth differential versus the rest of the market. The big tech stocks have correction potential in the event of earnings or guidance disappointments.
• A look at Europe, where sluggish economic activity in the region is also being reflected in the equity market, is relatively disillusioning. The majority of companies there have lowered their earnings guidance in recent weeks, and dozens of them have issued profit warnings. The underperformance of the European equity market relative to the USA is not astonishing against this backdrop – the Euro Stoxx 50
However, it’s questionable whether a Trump rally would ensue because part of the advance laurels may already be priced in.
Nervousness about the US presidential election is also palpable on fixed-income markets.
index practically has been treading water ever since last spring. Although a negative stance on European stocks has once again become the clear consensus view at the moment, this observation and the region’s cheap valuation are not sufficient grounds by themselves for placing a contrarian bet on Europe. China is a trade with greater upside potential at the moment, in our view. The current consolidation phase is normal and heathy in the wake of the massive runup in September. There are good chances that it will be followed afterwards by another upmove.
Fixed income: Is a Trump trade already priced in?
• Nervousness about the US presidential election is also palpable on fixed-income markets. The volatility barometer for US Treasury bonds (the MOVE index) hit a new year-to-date high in October. That was accompanied by significant price drawdowns and an inverse rise in yields. The yield on 10-year US Treasurys intermittently climbed back to 4.3% after bottoming at 3.6% in mid-September. That movement is only half-explained by the better-than-expected US economic data. The other part of the yield increase likely owes to the pricing in of the increased possibility and the associated risks of a Trump hat trick (capturing the White House, Senate, and House of Representatives). If Donald Trump really does win across the board, buying on the news could ensue counterintuitively. Underinvested investors may use the recently improved risk-reward tradeoff on US bonds to rebalance their portfolios. The US corporate bond space, in contrast, has remained in risk-on mode in recent weeks. High-yield bonds, for instance, fell to new yield lows in the post-pandemic cycle in October. We continue to see constrained upside potential for bond prices in this segment and recommend no more than a neutral allocation to it.
• Bond yields in Europe diverged relatively sharply in October. They rose substantially in the UK like they did in the USA, due in no small part to diminishing speculation about further rate cutting by the Bank of England. There was little upward yield pressure, in contrast, on German Bunds, though probably less because they are considered a safe haven in the Trump victory scenario and more because of the dimming economic outlook for Europe’s largest national economy. Meanwhile, the yield on 10-year Swiss Confederation bonds stayed close to its year-to-date low beneath the 0.5% mark. Alongside the safety aspect, Switzerland’s low inflation and the expectation of further rate cuts by the Swiss National Bank are also being factored into the market pricing of those bonds.
Alternative assets: Chaff and wheat among trend-following strategies
• The price of oil benefited only temporarily in October from the tensions in the Middle East. Israel refrained from taking drastic moves in its retaliation for Iran’s firing of approximately 200 ballistic missiles at the country on October 1. Instead of taking aim at Iran’s oil infrastructure or its nuclear facilities, Israel confined itself to striking military targets. The price of oil fell noticeably on the news. Trend-following strategies, which are predominantly short crude oil, profited from this. For many CTAs, though, this sufficed solely for cosmetic corrections to their performance statistics because it did not offset their bigger losses on their long positions in bonds and their shorts on the US dollar. Many CTAs by now have given back most of their sizable year-to-date gains since spring, separating this asset class into wheat and chaff once again this year – good selection is the trump card here.
Currencies: Dollar rally
• EUR/USD: A Trump bonus of sorts has also gotten priced in on currency markets in recent weeks. Higher market interest rates than in the Harris scenario would work in favor of the greenback, as would the tariffs that Trump is threatening to impose. However, the euro’s swoon in October also had a homemade component: sluggish economic activity prompted the European Central Bank to cut interest rates for a third time already, which makes the euro less attractive. So, the technical resistance at USD 1.12 again turned out to be a tough nut to crack. If the resistance is breached on the next attempt, that would send a strong signal to buy euros.
• GBP/USD: The British pound also has depreciated against the US dollar lately, but it remains well supported in the medium term. In contrast to the Eurozone and the USA, the pullback in inflation and wage growth in the United Kingdom is proceeding at a more plodding pace. The BoE’s comments on its latest interest-rate decision were thus accordingly hawkish, viewing the market’s expectations about future rate cuts as being somewhat hasty. Sterling’s relative interest-rate advantage versus other currencies continues to work in favor of a firm pound for the time being.
• EUR/CHF: October saw little movement in the EUR/ CHF exchange rate, which stayed close to its year-to-date low at a level of around 94 centimes. The Swiss National Bank appears willing to tolerate the franc’s strength, and there has been no evidence of any interventions lately. Anemic growth in the Eurozone and tame inflation in Switzerland are certainly two reasons for the strong franc. The Swiss inflation rate came in lower-than-expected again in September at just 0.8% (consensus forecast: 1.0%). The SNB will probably lower its policy rate again in December, but that is unlikely to lastingly help the euro because the ECB likewise remains on a rate-cutting course.
The price of gold knows no stopping. It has continually risen since lastingly overcoming the years-long technical resistance at around the USD 2,080-per-ounce mark on its price chart in March. Gold is now up a good 30% year-to-date, making it one of the biggest winners in 2024 among the major asset classes. There has always been a lack of good models for explaining gold’s price performance, and the usual correlation between (real) interest rates and gold has been defunct for two years now as well. The main argument these day for rising gold prices is demand on the part of central banks, which are diversifying their currency reserves. Meanwhile, gold bugs in particular are bound to feel vindicated because they have viewed the precious metal as a superior asset and as insurance against inflation and geopolitical risks since time immemorial. However, the investor herd has jumped back aboard the gold bandwagon lately. Demand for gold ETFs has increased, and a number of investment banks picture gold climbing above USD 3,000 very soon, which are signals more suggestive of an imminent pause for breath in the gold rally.
Chart in the Spotlight
Conventional Wisdom
Headline Risks
Overlooked Risks
Discounted Risks
Financial markets come with risks, including geopolitical risks, which seem at least to have further increased in recent years, frequently dominating news headlines.
Geopolitical Heatmap
Assessments of Global Hot Spots and Market Risks
Likely
• Global Technology War
• Persian Gulf in Flames
• Devastating Cyberattacks
• Grave Terrorist Attacks
In Markets’ Focus
• Tensions in East Asia
• Russia-NATO Conflict
• North Korea Conflict
• The Great Trump Panic
• Anti-Green-Wave Sentiment
Overlooked by Markets
• European Malaise
Unlikely
A Guide to Global Hot Spots and Market Risks
Financial markets come with risks, including geopolitical risks, which seem at least to have further increased in recent years, frequently dominating news headlines.
Many a pessimist thus is likely to be of the opinion that markets have become completely uninvestable by now. But whoever stuffs his or her money under a mattress or stashes it in a safe for that reason can only lose out in the long run. That person’s wealth will inevitably lose purchasing power in any event.
However, one also cannot just ignore global hot spots.
As an asset manager, we have a special duty to analytically examine the most important macroeconomic and geopolitical risks of our times, to gauge their probability of occurrence, and to infer their implications for financial markets. Fortunately, this routine exercise results not just in a concise heat map of trouble spots seen (and overlooked) by market participants, but also ultimately in the realization – more frequently than one might suspect – that a risk is improbable, is already priced in or, if it does materialize, is relevant only to rather exotic assets and niche markets.
True to the motto “political stock markets are shortlived,” investors should take headlines for what they are and shouldn’t allow the incessant chatter on the spectrum of channels to divert them from their longterm investment strategy.
User’s Manual
On our geopolitical heat map, we sort the ten most important global risks in order of their probability of occurrence and the amount of attention being paid to them by the financial markets, creating a matrix with four quadrants. Risks that already are firmly on the markets’ radar usually only cause short-term price reactions if and when they materialize. Investors should devote particular attention to the upper right quadrant of the heat map because probable but overlooked risks have the greatest potential on the whole to spring surprises and trigger market reactions. We describe the ten risks that we have identified and their latest developments in detail on the pages that follow. We additionally name the assets most affected by each hot spot.
Global Technology War
Conventional Wisdom
Probability |
• ↘ Chinese renminbi
• ↘ US investment-grade bonds
• ↘ Asia ex-Japan technology
• ↗ Infrastructure
Description
The USA and China in recent years have deliberately been seeking to decouple from each other, particularly in the area of highly sophisticated and militarily relevant technologies. The USA is employing a variety of tools (export controls, vetting of foreign investments) in an attempt to safeguard its lead in cutting-edge technologies (artificial intelligence, semiconductors, quantum computers). The scope of those measures is continually widening (e.g., biotechnology). Similar measures are also being contemplated in Europe. China is working on its own capabilities and is likely to achieve some technological breakthroughs on the strength of its human capital, its massive investments in research and development, and its centralized coordination. This is
The Great Trump Panic
Overlooked Risk
Description
If the Democrats defend the White House in November, this likely would have no major impacts on financial markets and would probably be viewed by them as business as usual, but the picture would look different under a Trump 2.0 administration. Only Donald Trump is threatening to withdraw from NATO, to slap high tariffs on imports from Europe, Japan, and Mexico, and to militarize the USA’s southern border. Only Trump exercises presidential powers so erratically and aggressively. If he gains a significant lead in the polls during the election campaign, mounting political uncertainty threatens to spark a correction on the equity market. A post-election relief rally would be more the rule than the exception, particularly if Trump cuts taxes as he has said he will.
bound to further stoke fears in the West and is likely to cause sustained tensions and to result in the development of parallel competing technologies.
Latest Developments
There is growing apprehension in the USA and Europe that China will inundate the world market with less sophisticated semiconductor chips for high-volume applications and squeeze Western manufacturers out of the market. Those concerns also apply to other areas such as renewable energy, where China has gained a lead on the back of massive state subsidies. In autumn, the EU Commission slapped punitive tariffs on imports of Chinese electric vehicles (against Germany’s recommendation).
• ↘ US Treasury bonds
• ↗ VIX index
• ↗ Bitcoin
• ↗ Gold
However, panic could break out on the bond market if Trump additionally stimulates economic activity and further increases the federal budget deficit.
Latest Developments
In the home stretch of the race for the US presidency, Donald Trump has eked out a slight lead in the polls and has been touted lately particularly on betting markets as the presumptive election winner. The recent performance of Bitcoin also reflects advance laurels for Trump. Nevertheless, the race is still tight, particularly in the crucial swing states. The election outcome will likely be shrouded in uncertainty for days or even weeks after November 5. Market Attention |
The election outcome will likely be shrouded in uncertainty for days or even weeks after November 5.
After more than two-anda-half years, the war on the eastern flank of Europe is approaching a turning point.
Tensions in East Asia
Headline Risk
Description
The USA and China have braced themselves for a longterm competitive relationship that could become more rancorous in the decade ahead in Southeast Asia. Although the meeting between Presidents Biden and Xi in November of last year reflected serious efforts on both sides to improve stability and communication in the relations between the two countries, this thus far appears to be merely tactical maneuvering and not a structural change in the dynamics of the relationship. Taiwan remains the most important potential trouble spot – a conflict over the island would have serious worldwide repercussions. Although a military escalation is unlikely in the near future, Taiwan’s semiconductor chip indus-
Russia-NATO Conflict
Headline Risk
Description
After more than two-and-a-half years, the war on the eastern flank of Europe is approaching a turning point. Ukraine’s surprise summer offensive on Russian territory did not bring any lasting relief. Russia, on the other hand, has made only small territorial gains at a tremendous cost. Pressure to halt the war looks destined to mount in 2025. Western support for Ukraine threatens to ebb while Vladimir Putin might content himself with locking in Russia’s military gains thus far. A political, economic, and military stalemate between the West and Russia is the most probable long-term outcome. If Russia considers itself successful in Ukraine, Moscow might contemplate attacking the Baltic countries or Poland.
Impacted
• ↘ Taiwanese equities
• ↘ Chinese high-yield bonds
• ↗ Defence sector stocks
• ↗ Gold
try is already doing everything it can to strengthen its resilience by, for example, diversifying its production to locations in Japan and Europe.
Latest Developments
Although the official rhetoric between the USA and China has moderated this year, deep mistrust continues to prevail in the West, nourished in no small part by a rapid increase in Chinese espionage activity. In October, China conducted another large-scale military exercise around Taiwan. Against the backdrop of mounting tensions, Japan’s navy sent a warship through the Taiwan Strait for the first time.
• ↘ Russian equities
• ↘ Russian rouble
• ↗ Crude oil
• ↗ Gold
This appears to be a low-odds scenario as things stand today because NATO continues to possess massive deterrence capability.
Latest Developments
The president of Ukraine presented his “peace plan” in October. One of its core points calls for the admission of the country to NATO as quickly as possible – a wish that is likely to go unfulfilled in the medium term. An increasing percentage of Ukraine’s population favors ending the war despite the territorial losses. Meanwhile, there is concern within NATO that Ukraine is in too weak a position militarily to negotiate with Russia.
Description
The attack on Israel by Hamas on October 7, 2023, was the deadliest assault on the country since the Yom Kippur War in 1973. Israel’s harsh military response not only resulted in a humanitarian crisis in Gaza, but also provoked backlashes from pro-Iran factions in Lebanon, Syria, Iraq, and Yemen, unleashing a spiral of violence. Military confrontations with Hezbollah have continually intensified in recent months, and Iran has also intervened in the conflict in the meantime by conducting massive rocket strikes on Israel. If Israel responds disproportionately to the aggression and soon takes aim at Iran’s nuclear program, for example, a further escalation looms. In the risk scenario, Iran counters by closing
North Korea Conflict Headline Risk
Description
North Korea in recent years has continued unabated to pursue its nuclear program and to isolate itself from the West while regularly carrying out provocations (such as the launch of a military satellite in late 2023). In the meantime, it has also forsaken a peaceful reunification with South Korea as a core policy objective. Meanwhile, North Korea’s rapprochement with China and Russia continues apace – North Korea has since become one of the most important arms suppliers to those two countries. In June, North Korea and Russia signed a treaty on mutual defense and cooperation. South Korea and Japan are strengthening their defenses and are deepening their relations with each other and the USA.
Impacted Assets
• ↗ Crude oil
• ↗ VIX index
• ↗ Swiss franc
• ↘ US high-yield bonds
the Strait of Hormuz, which would cause a near-term price shock on the petroleum market.
Latest Developments
Israel, in the meantime, has assassinated a succession of top Hamas and Hezbollah leaders and has severely degraded both organizations. Israel’s leadership currently sees an ideal opportunity to permanently weaken the “Axis of Resistance.” However, Israel’s aggressive course is increasingly eliciting revulsion in the West. The USA, in the meantime, is openly threatening to reduce its military aid to Israel, particularly if the country continues to ignore the humanitarian crisis in Gaza.
Impacted Assets
• ↗ Japanese yen
• ↘ South Korean won
• ↘ South Korean equities
• ↗ Industrial metals
The risk of renewed provocations and military actions by North Korea is growing, but a potential North Korea conflict remains just a “headline risk” for now.
Latest Developments
Tensions between North and South Korea have escalated over the course of the past year. Pyongyang has floated thousands of trash-carrying balloons across the border since May, disrupting air traffic, causing fires, and hitting government buildings in South Korea. Meanwhile, North Korea in October accused South Korea of having sent drones carrying propaganda leaflets across the border and blew up inter-Korean roads connecting the two countries.
Israel, in the meantime, has assassinated a succession of top Hamas and Hezbollah leaders and has severely degraded both organizations.
Governments and organizations are working continuously on strengthening their cyberdefenses and cyber resilience.
Description
Along with the intensification of geopolitical strife, there has been a continual increase in the scope, scale, and sophistication of cyberattacks. State-sponsored hackers, particularly from Russia and China, have many times over already infiltrated vital Western infrastructures such as power grids and transportation and healthcare systems and have broken into government officials’ digital accounts, exposing critical vulnerabilities. Large-scale ransomware attacks on enterprises highlight vast vulnerability in the business world as well. Malicious cyberactivity picks up particularly in conflict zones and ahead of elections, which can cause disruptions and breakdowns and puts pressure on
Conventional Wisdom
• ↗ US dollar
• ↗ Swiss franc
• ↘ Utility sector stocks
• ↗ Cybersecurity stocks
national security agencies to adopt a more proactive posture.
Latest Developments
Governments and organizations are working continuously on strengthening their cyberdefenses and cyber resilience. However, the continual evolution of cyberthreats, the difficulty of identifying cyberattackers, and swift advancements in artificial intelligence make preventing major cyberattacks a constant challenge. A defective software update from US cybersecurity firm CrowdStrike crippled air traffic and payment transaction processing in July. The market for cyberinsurance looks set to continue growing rapidly.
• ↘ Airline stocks Grave Terrorist Attacks
• ↗ German government bonds
• ↗ Swiss franc
• ↗ Japanese yen
Description
Financial markets’ alertness to worldwide terrorism risks has increased in recent years. The conflict in the Middle East especially raises the terrorism threat not just in that specific region, but also in the USA and Europe. Western law enforcement and intelligence agencies view violent extremists and “lone wolves” as the biggest concern. Al-Qaida and ISIS are further extending their global reach, giving rise to new terrorism hot spots, for example in the Sahel, where military coups threaten to undermine Western efforts to combat terrorism. In the USA, the Biden administration has declared domestic terrorism a serious risk. There’s
an elevated danger of a major terrorist attack in Western countries in the runup to presidential elections.
Latest Developments
On March 22, 2024, Moscow was struck by a terrorist attack that killed over 100 people. ISIS-K, the Afghanistan branch of the Islamic State militant group, claimed responsibility for the act. The attack dealt a blow to Vladimir Putin’s carefully crafted “strong man” image. Experts suspect that the Kremlin might use the attack to justify a crackdown on dissidents and to tighten its authoritarian grip on Russia.
European
Description
The risk of a fragmentation of Europe has increased in the 2020s – the war in Ukraine, an energy crisis, inflation pressure, and an economy on the brink of a recession have put a temporary tailwind behind populist parties in some countries (e.g. Germany, the Netherlands). Nevertheless, Europe is united on core issues and objectives such as increasing its strategic autonomy and decoupling from China, supporting Ukraine, and reforming migration policies. Differences of opinion mainly concern details such as implementation and funding. Right-wing parties in France, Germany, and Italy gained votes in European elections in June, but there was no sweeping lurch to the right in Europe. However, a number of issues could strain political cohesion in Europe in
Anti-Green-Wave Sentiment
Overlooked Risk
Description
The war in Ukraine has pushed energy security higher up in governments’ rankings of risks. The energy shock has prompted ambitious decarbonization plans in Europe in a race against the USA to seize the leadership mantle in the field of clean energy. This “green race” could act as a catalyst for accelerating the development of low-carbon technologies. However, the progressive transition agenda clashes with many other national priorities and is irking ever wider swaths of the pubic that are angry about the high transition costs. Green parties in Europe are losing ground, reflecting voter dissatisfaction. The markets tend to be overlooking the risk of a
Impacted Assets
• ↘ Hotels & leisure stocks
• ↘ Italian government bonds
• ↗ Swiss franc
the medium term. One of them is irregular migration to the EU, which last year reached its highest level since 2016.
Latest Developments
The European malaise is more subjectively perceived than actually existent. While the core (mainly Germany) is exhibiting weak economic activity, countries on the periphery are growing much more strongly – this convergence could reinforce unity and sentiment toward the euro. There has been intermittent market turbulence, though. The snap elections in France temporarily caused credit spreads to widen. However, the election outcome showed that there are inertial forces in place against a lurch to the right.
Impacted Assets
• ↘ Industrial metals
• ↘ Renewable energy stocks
• ↗ Utilities sector stocks
• ↗ Uranium
negative swing in sentiment toward the energy transition and of delays resulting from that.
Latest Developments
The US Securities and Exchange Commission (SEC) in April announced that it has suspended the implementation of its recently enacted disclosure rules on climate-related risks and greenhouse gas emissions. Companies had already mounted legal challenges against the new regulation prior to its final adoption and publication in March. The SEC declared that it nevertheless would continue to “vigorously defend” the new climate-related disclosure requirements.
The European malaise is more subjectively perceived than actually existent.
The USA voted. However, it’s by no means certain that the months of incessant media noise surrounding the US presidential election will now come to a swift end.
Theme in Focus
Trump or Harris? – Scenarios for Switzerland
Who will occupy the Oval Office next year? The political question of the year will likely be answered shortly or by January at the latest. But what are the potential implications of Donald Trump or Kamala Harris and their respective policies for businesses in Switzerland? Every four years, faraway US politics briefly gains prominence in entrepreneurs’ cabinet of worries. Does the upcoming US presidential election present an opportunity or a risk? Our speculative scenarios serve merely as food for thought because in the end things always turn out differently than one thinks they will.
The wait is (almost) over The USA voted. However, it’s by no means certain that the months of incessant media noise surrounding the US presidential election will now come to a swift end. The election might very well be followed by electoral chaos. Recounts and other kinds of delays are practically assured in the swing states. Legal and procedural challenges could endure until December 17, the deadline for the official nomination of state electors, whose votes will be counted in Congress on January 6, 2025.
Political goings-on in the USA usually very rarely have a bearing on the day-to-day business of Swiss entrepreneurs and therefore don’t exactly belong in the top drawer of their cabinet of woes. Nevertheless, every four years a recurring question arises: What would red (Republicans) or blue (Democrats) imply for us?
Red or blue this year means Donald Trump or Kamala Harris. Sounding out the implications of US politics and policies for faraway Switzerland requires speculative creativity along the edges of the red and blue election platforms. Extreme-case scenarios conjured in this manner help one to gain an impression of the areas in which the next US presidency could have tangible impacts in this country.
Trump scenario: Thriving Swiss exports thanks to a strong US dollar
Donald Trump has voiced repeated complaints in recent months about an excessively strong US dollar. But nobody, not even a President Trump, can induce a currency depreciation at the press of a button. Quite the contrary, in fact, many items on Trump’s agenda are actually conducive to a strong US currency. For instance, his proposal to impose an across-the-board 10% punitive tariff on all imports would reduce demand for foreign currencies and stoke inflation at the same time. The US Federal Reserve would then have to raise inte-
rest rates to counteract that. The prospect put forth by Trump of restricting immigration would likewise have an inflationary effect and would tend to result in higher interest rates and a stronger US dollar. Swiss businesses would become more competitive on the back of a weaker franc, and the uniqueness of their products might enable them to boost their turnover in the USA despite the punitive tariffs. Even the tourism industry in Switzerland would reap beneficial rewards from the increased spending power of Americans, apart from the unpleasant side effect of having more flip-flop-shod hikers in the Alpstein mountain range. However, if Trump were to deliver on his pledge to slap a 60% tariff on imports from China, Swiss corporations would have to look into whether they could still use the Middle Kingdom as an export base or if it would make more sense to reshore operations.
A further cut in the corporate tax rate to 20% (which Trump calls a “nice round number”) or even to 15% would likewise benefit Swiss entrepreneurs either directly, since subsidiaries in the USA would have less taxes to pay, or indirectly via the wealth effect of booming stock markets, which would further stimulate US consumer spending. An end to the war in Ukraine within 24 hours, as Trump has heralded, is arguably only wishful thinking even when contemplating potential scenarios. However, mounting pressure on NATO countries to increase their defense spending to at least 2% of their GDP would be a certainty under a Trump 2.0 presidency and could potentially present an opportunity for Swiss arms manufacturers. Finally, Trump’s shifting opinion on cryptocurrencies in recent years also makes one sit up and take notice in Switzerland. The buildup of a national Bitcoin reserve in the USA and foreseeable lax regulation of the crypto sector sooner or later would also benefit crypto companies and financial institutions in Switzerland.
Harris scenario: A chance for Swiss Silicon Valley
Compared to the Trump scenario, Swiss businesses potentially could face a major headwind with a President Harris in the White House. A ban on “price gouging” and regulated price ceilings could adversely impact the food-and-beverage sector and the pharmaceutical industry, for example. In addition, Harris’s election platform is one thing above all: expensive. Its proposed tax cuts and tax credits for the middle class and families add up to several trillion US dollars that are compensated by much less revenue from tax hikes elsewhere. A persistently gaping budget deficit and rapidly increasing federal debt result on the bottom line under the Democrats (as it does under Trump as well, by the way). In the Harris scenario, though, the financial market could get overly annoyed about that, resulting in a loss of confidence in the US dollar and a sharp depreciation of the reserve currency. The Swiss franc would directly benefit from that, with well-known risks and side effects for Swiss exporters.
However, a Harris presidency would present opportunities for businesses that are able to provide suitable solutions for the green transformation. Companies that have dedicated themselves to sustainable technologies are likely to receive a lot of subsidies in the years ahead, but only for those entrepreneurs that cross the Atlantic. Yet Harris’s (redistribution) policies might have effects also in Switzerland. If she implements her idea of taxing unrealized capital gains, that could prompt tech billionaires to flee California’s Silicon Valley. They would then seek a combination of attractive tax conditions and locational appeal, which definitely can be found in Switzerland.
Keep calm (and carry on)
Things never turn out exactly the way one thinks they will, and similarly, hardly anything in the scenarios above will come true precisely as described, if only because it is highly improbable that Trump or Harris will gain control of both chambers of the US Congress along with the White House. A divided Congress would either dilute many initiatives and reform bills or render them altogether impossible. And even an erratic, flip-flopping President Trump shouldn’t cause Swiss entrepreneurs a lot of needless worry wrinkles. Anyone who does have them should ask if a lot changed for him or herself in the wake of the Trump 1.0 presidency. In the long run, it’s actually the major macroeconomic and political trends that harbor risks and opportunities for businesses, not who’s sitting in the Oval Office at any given time.
Regardless of who takes over the White House on January 20, 2025, it’s very probable that the USA will remain Switzerland’s most important trade partner during the next legislative period. Germany was already supplanted as the biggest export destination for Swiss goods back in 2021. In order to remain the world champion in innovation, in the future Switzerland must continue to cultivate close interaction and cooperation with the
United States, which calls the shots on key technologies of the future such as artificial intelligence and biotechnology.
Speaking of artificial intelligence, one subcategory, generative AI, which is most widely known in the form of chatbots such as ChatGPT, looks set to become almost indispensable in the day-to-day operations of most Swiss businesses in the near future. Kaiser Partner Privatbank already utilizes the possibilities afforded by this new technology in its everyday work. So, we of course also confronted ChatGPT with the question of the how the US election outcome might affect Switzerland. But a disclaimer is necessary here: although ChatGPT has a vivid imagination, it thinks in stereotypes and paints a partly extremely exaggerated picture of the presidential candidates and their respective political mindsets that is quite detached from reality. Hence, the comments below should be construed mainly as satire.
Trump scenario: Switzerland as the 51st US state
After the election, Trump, in a completely unexpected gambit, decides to annex Switzerland as a new US state because he is enamored by the beauty of the Alps and by the country’s exquisite cheeses. “America needs more mountains!” becomes his new slogan. Swiss corporations like Nestlé and Roche suddenly get rebranded as American companies and have to adapt to the new US standards. Toblerone gets sold in an XXL version that’s larger than the Eiffel Tower and gets a patriotic makeover in the colors red, white, and blue.
One of Trump’s first projects after integrating Switzerland into the USA is building a massive wall around Switzerland’s borders to keep out “illegal cheese smugglers” from France and Italy. Swiss farmers are designated “Heroes of Dairy” by Trump, and a new tax is levied on alternative imported cheeses such as feta and Parmesan. Swiss agriculture flourishes because every American is required to keep a Trump-approved cow in his or her yard. Rental cows become so profitable that UBS converts its bank branches into co-working cattle barns.
Trump decides that the precision of the Swiss watch industry must finally be Americanized. He personally negotiates with Rolex to develop a Trump Presidential Timekeeper, a watch so accurate that it can turn time back an hour if Trump deems it necessary to do so.
Swiss watch manufacturers earn record profits despite every timepiece having to be adorned with a small golden Trump logo.
In another whimsical move, Trump abolishes the Swiss franc and introduces the Swiss dollar. Banks in Switzerland rejoice because the new dollar is minted in gold and is perfect for collectors. Every bank branch now gives away small statues of Trump, and there’s a national celebration of Trump Financial Independence Day, on which every Swiss citizen receives a gold-plated rifle and a bag of cheese fondue.
Things never turn out exactly the way one thinks they will, and similarly, hardly anything in the scenarios above will come true precisely as described, if only because it is highly improbable that Trump or Harris will gain control of both chambers of the US Congress along with the White House.
Harris scenario: Chocolate for everyone Under Kamala Harris’s leadership, Switzerland morphs into a new mecca of global justice. Swiss companies become obligated by law to donate 50% of their production to community chocolate centers, which hand out free chocolate to everyone. Switzerland’s famous watch factories retool and now manufacture only equal-time watches, ensuring that timepieces on the wrists of everyone around the world show exactly the same time, for there are no longer any time zones, just Harris Standard Time. This causes bewilderment, particularly in the case of international teleconferences, but a feeling of planetary synchronicity takes root.
Harris implements the largest environmental initiative in history – the Green Glacier Deal – with Switzerland at the center of those efforts. Swiss glaciers get covered with eco-friendly solar cells that take over generating the entire energy supply for all of Europe. Swiss energy companies like ABB and Alpiq are awarded contracts to
transform the entire planet into “energy glaciers.” Swiss banks finance the project through special “glacier savings accounts” that pay out an annual dividend in the form of glacier snowmelt.
Under the Harris administration, the federal parliament building in Bern gets converted into a giant yoga center, where legislators reach decisions through collective meditative breathing. Swiss companies are forced to cut their work time to five hours a week to give employees more time for “personal enlightenment.”
In a bold and daring move, Harris extends the traditional neutrality of Switzerland to the entire cosmos. Swiss diplomats negotiate peace treaties between Earth and new intergalactic civilizations. Swiss businesses now no longer export just to the USA, but also to Alpha Centauri, with the price of milk mysteriously staying stable despite the long interstellar supply chains.
The Back Page Asset Classes
This document constitutes neither a financial analysis nor an advertisement. It is intended solely for informational purposes. None of the information contained herein constitutes a solicitation or recommendation by Kaiser Partner Privatbank AG to purchase or sell a financial instrument or to take any other actions regarding any financial instruments. Furthermore, the information contained herein does not constitute investment advice. Any references in this document to past performance are no guarantee of a positive future performance. Kaiser Partner Privatbank AG assumes no liability for the completeness, correctness or currentness of the information contained herein or for any losses or damages arising from any actions taken on the basis of the information in this document. All contents of this document are protected by intellectual property law, particularly by copyright law. The reprinting or reproduction of all or any parts of this document in any way or form for public or commercial purposes is expressly prohibited unless prior written consent has been explicitly granted by Kaiser Partner Privatbank AG.
Publisher: Kaiser Partner Privatbank AG Herrengasse 23, Postfach 725 FL-9490 Vaduz, Liechtenstein HR-Nr. FL-0001.018.213-7
T: +423 237 80 00, F: +423 237 80 01 E: bank@kaiserpartner.com
Editorial Team: Oliver Hackel, Senior Investment Strategist
Design & Print: 21iLAB AG, Vaduz, Liechtenstein