September 2022
Monthly Market Monitor
Table of contents
Asset Allocation Notes from the Investment Committee 10 ThePageBack Asset classes & agenda 16 Satellite View The geopolitical heat map 08 Theme in Focus Growth stocks: A comeback or a dead-cat bounce? 12 In Nutshella Our view on the markets 04 Macro Radar Taking the pulse of economic activity 05 Ask the experts Questions stirring our clients (and the financial markets) 14 Kaiser Partner Privatbank AG | Monthly Market Monitor - September 2022 3
There has actually never been a shortage of exponen tially rising price charts in recent years. Meme stocks like GameStop & Co. and cryptocurrencies like Bitcoin were the stratospheric fliers in 2021, and this year it’s energy prices. Alongside the price of natural gas, the wholesale price of electricity is also on everyone’s lips these days. It has risen multifold in many countries in Europe since the start of this year, but has only just be gun to put an additional strain on consumers’ wallets. But that looks set to change in the months ahead – dur ing next year at the latest – and is another piece of the puzzle that will keep inflation rates high. One drop of solace at least is the fact that electricity prices aren’t set by the grace of the president of Russia, but instead de pend on an array of other factors including the weather and thus presumably are likely to ease before the situ ation on the European gas market does.
Europe is headed for a recession Economic growth prospects continue to turn bleaker, much faster in Europe than in the USA. While a “soft landing” still seems possible in America, a recession in the Eurozone is clearly the baseline scenario by now.
Our view on the markets the Ukraine conflict. While an end to the military altercation is not in sight at the moment, clear expectations regarding Russia’s future economic prospects and the country’s relations with the West can already be formulated. A negative spiral is virtually inevitable.
Ask the experts
Central banks on both sides of the Atlantic face formi dable challenges. While the substantial recovery on equity markets and the resulting looser monetary con ditions will likely cause a headache for the US Federal Reserve, it is soaring energy prices that are bound to put the European Central Bank in a quandary.
How is Russia’s economy faring? Our “muddling through” scenario that we been fa voring of late continues to reflect the sad reality in
A comeback or a dead-cat bounce? Technology and growth stocks ranked among the big losers in the first half of 2022, but they clawed back part of their underperformance during the sultry weeks of summer. Does this signify a genuine comeback, or are tech and growth stocks just coming up for air to take the next plunge? Although the medium-term outlook is constructive, the long-term potential of the growth investment style depends on what interest-rate regime will prevail in the future.
And even more urgent questions that we venture to answer: What does the US Inflation Reduction Act do to rein in inflation and protect our climate? Is the USA already in a recession, or will it successfully come in for a soft landing? Is the equity market in a bear market rally? How great is the risk in the conflict between China and Taiwan? And does it pay to hedge against rising energy prices?
Chart of the Month Supply and demand… | …in real-world practice Wholesale electricity price (baseload, 1 year forward) Sources: Bloomberg, Kaiser Partner Privatbank 1400120010008006004002000 Germany France 2020 2021 2022 Monthly Market Monitor - September 2022 | Kaiser Partner Privatbank AG4
After the summer rally The not-at-all surprising summer rally intermittently lifted equity markets up to their respective intact down trend lines. Any attempt to break out above them is un likely to succeed, at least not on the first try. Share-price trajectories in the months ahead will largely depend on corporate earnings, which still have considerable down side potential in the negative macroeconomic scenario.
In a Nutshell
Investors would be well advised to head into autumn with due caution (and with hedges in place), but not too pessimistically.
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Monthly Market Monitor - September 2022 | Kaiser Partner Privatbank AG6
Sources: Bloomberg, Kaiser Partner PrivatbankSources: Bloomberg, Kaiser Partner Privatbank
Economic growth prospects continue to turn bleaker, much faster in Europe than in the USA. While a “soft landing” still seems possible in America, a recession in the Eurozone is clearly the baseline scenario by now. Central banks on both sides of the Atlantic face formidable challenges.
Signs of relief | Inflation pressure is at least escaping from supply chains
Privatbank AG | Monthly Market Monitor - September
2023, soaring electricity prices, the weak euro and less gen erous government mitigation measures in the near future give reason to expect only a slow ebbing of inflation.
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Almost exponentially rising energy prices have caused in flation in the United Kingdom to climb into double-digit territory, and similarly high rates also loom in the Eurozone in the fourth quarter. Even if the zenith is reached in early
Only limited easing by China Hopes have been riding on China staging a rebound. How ever, pleasing June data were followed by disillusionment in July as industrial production and consumer spending figures came in weak. The crisis-wracked Chinese real es tate sector in particular is not so much a near-term growth problem, but rather a huge long-term risk. The People’s Bank of China implemented various interest-rate cuts for banks and households in August in an attempt to stabi lize this important sector. In the big picture, though, this amounts to only a homeopathic dose of stimulus. The Chinese government’s 5.5% growth target for this year has been scrapped in the meantime. Europe is headed for a recession Weak purchasing manager index readings for August have made a recession in the Eurozone the baseline sce nario by now. While the Eurozone manufacturing PMI re mained in contraction territory at a level of 49.7 points, the service-sector PMI came in only a hair’s breadth above that at 50.2 points. One silver lining was indications of an improvement in supplier delivery times. However, the negative signals – high electricity and natural gas pric es, scorching heat and low Rhine water levels, and prob ably thriftier consumers soon – predominate. Peak inflation (still) not reached yet While the inflation apex in the USA is already in the rearview mirror, the biggest price hikes in Europe are still to come.
The US central bank chairman, though, at least left an op tion on the table that there will be “only” a 50-basis-point policy rate increase in September and that the phase of “unusually large” rate hikes is already over. For now, forth coming interest-rate decisions are likely to remain very da ta-dependent, and the market’s interest-rate expectations are bound to remain accordingly volatile. Meanwhile, the substantial recovery on equity markets will likely tend to be a headache for the Fed because it causes an (undesired) easing of monetary conditions.
Global Supply Chain Pressure Index (Federal Reserve Bank of New York)
Consensus estimates 2022 2023 2024 GDP growth (in %) Switzerland 2.4 1.3 1.6 Eurozone 2.8 0.8 1.9 UK 3.5 0.1 1.5 USA 1.7 1.1 1.7 China 3.5 5.2 4.9 Inflation (in %) Switzerland 2.8 1.5 1.0 Eurozone 7.9 4.1 2.0 UK 9.3 6.5 2.0 USA 8.0 3.7 2.5 China 2.3 2.3 2.0 Kaiser Partner Privatbank interest rates view Letzter 3M 12M Key interest rates (in %) Switzerland -0.25 ↗ ↗ Eurozone 0.00 ↗ ↗ UK 1.75 ↗ ↗ USA 2.50 ↗ ↗ China 2.75 → → 10-year yields (in %) Switzerland 0.89 → → Eurozone 1.61 → → UK 2.87 → → USA 3.20 → → China 2.63 → → 543210-1-2 2012 2016 20202000 2004 2008 Partner 2022
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U-turn by the Fed?
In the wake of Jerome Powell’s speech at the annual Jack son Hole symposium, the analyst community remains in disagreement about whether the Fed has already pivoted.
Macro Radar Taking the pulse of economic activity
More than six months after Russia’s assault on Ukraine, the magnitude of the harm to Russia’s economy is still difficult to estimate, not least because official sta tistics by now are likely even less reliable than they were before the outbreak of the war. The reported 4% economic contraction in the second quarter (after an expansion of 3.5% in the first quarter) at least seems suspiciously small. On the other hand, the findings of an assessment by the Yale School of Management published in July, which assert that Russia’s economy has been “catastrophically crippled” by the withdraw al of Western companies and the imposition of sanc tions, are probably a bit exaggerated because many of the (falling) indicators cited in the Yale study are ex tremely volatile and, moreover, some of them already recovered during the summer months. A severe but not necessarily catastrophic recession is likely to be the most accurate appraisal at the moment.
has only a limited ability to simply reroute it to Asia. Second, Russia is losing access to vital technologies and capital from the West. When it comes to microchips or equipment for oil and gas exploration in the Arctic, even China can’t offer much help, even if it wanted to.
Russia’s natural resource production looks destined to tend to decrease, and its industrial base is bound to suf fer as a result. Third, Russia is losing its brightest minds. Already around 300,000 Russians have left their home land since the start of the war, and the exodus contin ues. The emigrants are mostly young, entrepreneur ial, tech-savvy urban elites without whom Russia will become even less dynamic than before. Finally, it will likely also cost something to maintain the ever more extensive apparatus of repression being used to keep anti-war dissent and public frustration over a declining standard of living under control. All four of the points cited above may reinforce each other and are bound to create a veritable vicious circle for Vladimir Putin.
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How is Russia’s economy doing?
On the way to a vicious circle Sanctions, in reality, are only a slow-acting poison, but they should contribute to severely impairing Russia’s economic power and ultimately degrading the coun try’s military capacity in the future. First of all, the Russian state is likely to lose vital export revenue in the medium term. It currently is still earn ing piles of money with oil and natural gas sales. However, if oil prices continue to head back to normal, the current dis count on Russian petroleum on the world market will inflict pain. Mean while, the European Union will pur chase less and less natural gas from Russia going forward, but Moscow Satellite View Geopolitical heat map Our “muddling through” scenario that we been favoring of late continues to reflect the sad reality in the Ukraine conflict. While an end to the military altercation is not in sight at the moment, clear expectations regarding Russia’s future country’sprospectseconomicandtherelationswiththeWestcanalreadybeformulated.
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Monthly Market Monitor - September 2022 | Kaiser Partner Privatbank AG10
Asset Allocation
In the past, summers before US midterms were consis tently very weak, and rallies didn’t start to ensue until autumn. This shows that historical analogies can help to form expectations, but are not reliably predictive of the future. It is very unlikely that the market will tran sition seamlessly from a summer rally directly into an autumn rally. For one thing, (US) benchmark indices have just ricocheted downward off intact downtrend lines in recent weeks. Secondly, share-price trajectories in the months ahead will also depend on fundamen tals, especially on corporate earnings, which still have considerable downside potential in the negative mac roeconomic scenario.
Equities: Summer rally
Notes from the Investment Committee
• As has so often happened in the past, the ultra-bearish investor sentiment and oversold technical conditions observable in June once again exerted their typical slingshot effect and sent equity markets on a vibrant rally. The more than 15% gain registered by the USA’s blue-chip S&P 500 index and the more than 20% ad vance posted by tech-heavy Nasdaq index marked no less than one of the strongest summer rallies in recent decades. Interestingly, this does not fit with the histori cal pattern that midterm election years tend to follow.
Corporate earnings Valuation InvestorTrend sentiment Fixed income: Sideways • Government bond yields in the USA and Europe em barked on another run upward in August. In Europe in particular, this is likely attributable to the renewed surge in energy prices and the corresponding increase in inflation risks, which have turned “recession risk” into the baseline scenario in the Eurozone and the United Kingdom (Switzerland could initially prove to be an ex
• We have adopted a slightly more defensive position ing in our discretionary investment mandates in recent weeks and have reduced the beta to the broad market somewhat, largely in view of this scenario envisaging a hard landing of the US economy. A hedge against a second major downwave on equity markets also con
tinues to belong in portfolios, in our opinion. Although we expect to tend to see wide rangebound movement in the near term, we see a substantial 25% to 30% prob ability of a second plunge occurring, by our estimates. Moreover, hedging strategies have been inexpensive to acquire lately. We also remain cautious toward (and underweight in) the Chinese equity market. Although the government and the People’s Bank of China are trying to turn economic activity around in the Middle Kingdom, the risk/reward tradeoff there is nonetheless unattractive, in our view.
The not-at-all surprising summer rally intermittently lifted equity markets up to their respective intact downtrend lines. Any attempt to break out above them is unlikely to succeed, at least not on the first try. Investors would be well advised to head into autumn with due caution (but not pessimistically).overly Asset Allocation Monitor + + Cash Equities Fixed Income Global Sovereign bonds Switzerland Corporate bonds Europe Microfinance UK Inflation-linked bonds USA High-yield bonds Emerging markets Emerging-market bonds Alternative Assets Insurance-linked bonds Gold Convertible bonds Real estate Duration Hedge funds Currencies Structured products US dollar Private equity Swiss franc EuroBritish pound Scorecard + Macro 08/2022 Monetary/fiscal policy
The euro isn’t the only currency under pressure at the moment on the forex markets. The Japanese yen, too, is in the midst of an accelerated downward trend and is trading at a 24-year low against the US dollar. The low inflation in Japan and the big inflation differential versus other countries actually make a case for a strong curren cy, just like they do for the Swiss franc. But the difference – or the problem – is the Bank of Japan and its expansive monetary policy, which stands in ever starker contrast to the rest of the world. It makes the yen an unattractive currency to invest in from an interest-rate perspective and at the same time renders it an attractive currency to use to take on debt (to invest in higher-yielding cur rencies). Meanwhile, Japan is becoming more and more interesting (read: cheaper) for tourists and Western in vestors. A Big Mac in Tokyo costs less than 3 US dollars today, and the private equity industry is taking a growing liking to inexpensive M&A opportunities in Japan.
2020
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• GBP/USD: Inflation in the UK has consistently sur prised on the upside of late and threatens to spiral completely out of control soon (at least temporarily). Some analysts expect to see it north of 15% within a short time. Rampant inflation in combination with a highly probable recession and the UK’s twin currentaccount and trade deficits keeps the outlook for the British pound clearly negative for the time being.
• EUR/CHF: The path of least resistance for the EUR/ CHF exchange rate continues to point downward and has already led the currency pair to a level below 96 centimes for a short while. The franc is benefiting not just from Switzerland’s strikingly lower inflation com pared to the Eurozone, but also from slowing global economic growth, which increases demand for the safe-haven currency. The latest developments are probably exactly to the Swiss National Bank’s liking.
Currencies: The Swiss franc strengthens further • EUR/USD: The euro continues to languish, and not even the fact that the financial market now expects to see two big interest-rate hikes by the European Central Bank in September and October has been able to help it lately. The single currency threatens to entrench itself at a level below parity because from the perspective of the fundamentals, eco nomic growth and inflation differentials continue to work in favor of a stronger US dollar. However, the greenback’s medium-term upside potential already appears largely exhausted. The probability of a sub stantial euro rally occurring is increasing.
• However, not all government bonds provide these hedging attributes at the moment. Caution is particu larly called for with Italian sovereign debt securities. Hedge funds recently have significantly upped their bets against Italy because the country, alongside Ger many, is particularly prone to high natural gas prices but is less economically powerful. The additional burden that expensive energy imposes on the state increases not just the risk of a further deterioration in Italy’s sovereign debt situation, but also makes the country susceptible to Russian propaganda and vul nerable to a rightward lurch in the upcoming parlia mentary elections in late September.
Alternative assets: Challenging climate
ception once more). However, this development also makes a case for expecting rangebound movement in the near future but not a further increase in longterm market interest rates because fears of a reces sion are likely to be reflected also by the bond market soon. This means that government bonds at the mo ment provide a fairly attractive chance to park liquid ity, to keep one’s powder dry for future investment opportunities, and to hedge one’s investment port folio to a limited extent against a recession scenario.
Chart in the Spotlight On a downward trend | Big Macs aren’t all that’s cheap in Japan US dollar vs. Japanese yen Sources: Bloomberg, Kaiser Partner Privatbank 140130120110100 2021 20222018 2019 Kaiser Partner Privatbank AG
• This year has been a challenging one also for investors in alternative assets. While gold has failed to provide any protection against inflation and is down slightly year-to-date (in US dollars), hedge funds, as mea sured by the HFRX Global HF Index, have also turned in a negative performance so far this year. One excep tion has been trend-following strategies (CTAs), which have profited from the strong movements in bond prices (downward) and commodity prices (upward) and posted double-digit percent gains for the first half of 2022. But times have gotten tougher lately even for this segment because the price trends in the respec tive asset classes and categories have since weakened or even reversed. The current climate is also tough for (institutional) investors in private equity. Payouts this year could turn out smaller than capital calls, mak ing cash management more difficult. At the same time, many investors have overweight positions in private-market assets due to the weak public equity markets. Both of those factors look destined to give rise to better-than-average opportunities on the secondary market in the near future. Retail inves tors, too, can profit from those opportunities via corresponding investment products.
Interest-rate peak = growth bottom? But the sudden comeback by growth stocks isn’t attributable to technical market factors alone. Moreover, we currently find ourselves in a regime in which different equity investment styles – i.e. styles focused on value stocks or growth stocks, for example – react very sensitively to changes in interest rates. This sensitivity is deducible from the high positive or negative correlation of the excess return (alpha) on specific baskets of stocks such as dividend aristocrats or the constituents of the Nas daq 100 with (5-year) US interest rates. Hence, the main driver of the purported growth revival and the recent underperformance of the value invest ment style is the sharp pullback in the market in terest-rate level at the long end of the yield curve.
A genuine revival… | …or a dead-cat bounce? Technology stocks relative to the broad market A market driven by interest rates | High correlation between equity alpha and bond yields Correlation between equity alpha and 5-year US Treasury yield
One in particular is that inflation appears to have already reached its peak (USA) or is close to doing so (Europe) while the economic activity outlook is dimming and the threat of a recession is mounting.
Technology and growth stocks ranked among the big losers in the first half of 2022, but during the sultry weeks of summer, they clawed back part of their underperformance. Does this signify a genuine comeback, or are tech and growth stocks just coming up for air to take the next plunge? Although the medium-term outlook is constructive, the longterm potential of the growth investment style depends on what interest-rate regime will prevail in the future.
1009896949290 1009590858075echTUSMSCI echEurMSCIopeT MSCI US Tech MSCI Europe Tech
-1.0 -0.8 -0.6 -0.4 -0.2 0 0.2 0.4 0.6 0.8 1.0 Dividend Ar stocrats Nasdaq 100 19962016 2000 20042020 2008 2012
There are good reasons for the recent yield decline.
Elevated geopolitical risks round out the mix and increase the need for security (the kind provided by government bonds). Given this set of circum stances, it appears that long-term market interest rates likely have also already peaked in the current cycle. If that’s the case and if yields tend to stay rangebound around their current level in the near future, the growth vs. value performance relation ship looks set to resume stabilizing because as re cent months have shown, it’s mainly the change in the interest-rate level – not the absolute interestrate level – that is driving the growth/value ratio (at the moment).
Theme in Focus Growth stocks: A comeback or a dead-cat bounce?
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Catching a breath Growth-stock devotees have been granted a respite in recent weeks. Instead of summer doldrums, tech nology stocks (which make up a large part of the growth-stock segment) have staged a vibrant sum mer rally. The Nasdaq 100 index has gained around 20% since mid-June. Meanwhile, an updraft has been wafting even in the most speculative nooks and cran nies of the equity market such as biotech stocks and even meme stocks like GameStop and AMC. Alto Sources: Bloomberg, Kaiser Partner Privatbank Sources: Bloomberg, Kaiser Partner Privatbank 08/2201/22 02/22 03/22 04/22 05/22 06/22 07/22 gether, technology and growth stocks have clawed back around half of their year-to-date underperfor mance relative to the broad market. However, their prior share-price declines had made a correction overdue. At their nadir, more than half of all stocks in the Nasdaq index were trading 50% below their all-time highs. Unprofitable (“disruptive”) growth companies had already been in a bear market since March 2021 and had registered peak-to-trough share price drawdowns ranging from 70% to 90%.
The yield on 10-year US Treasury notes plummeted from 3.5% in mid-June to intermittently as low as 2.6% in early August.
1.00 % 1.43 % 1.86 % 2.29 % 2.71 % 3.14 % 3.57 % 4.00 %
Sources: Bloomberg, Kaiser Partner Privatbank
All cases Average 6.4% 6.2% 0.2% 14.4% 13.9% 0.5% Median 6.3% 7.4% -1.1% 15.9% 13.1% 2.7% Tech bubble excluded Average 7.6% 5.8% 1.8% 15.5% 13.2% 2.3% Median 6.7% 7.4% -0.7% 15.3% 12.6% 2.7% 6M return 12M return 202220171997 2002 2007 2012 Partner
Kaiser
Growth at a mild advantage | Performance potential after an economic downturn “ISM PMI drops below 50” scenario, historical returns since 1975 Uptrend (still) intact | Is there still a big drop height? MSCI World Growth vs. MSCI World Value
Falling yields… | …create a tailwind for growth stocks Value vs. growth and 10-year US Treasury yield
Sources: Bloomberg, Kaiser Partner Privatbank
Sources: Bloomberg, Kaiser Partner Privatbank 135130125120115110105100
Constructive medium term, long-term question marks The (relative) prospects for growth stocks are also constructive on a medium-term horizon, in our view. For one thing, from a valuation perspective, an analy sis by Goldman Sachs reveals, for example, that the price-to-sales ratio of high-growth stocks in the USA has decreased from 14x to less than 4x (median since 1995). There definitely are some attractive bargains by now in the growth stock universe, as evidenced by a number of take-private transactions by private equity managers lately like Thoma Bravo’s recent takeover of cybersecurity specialist Ping Identity (at a 63% premium over the company’s last closing stock price). Moreover, the prospects for growth stocks are perhaps better than they may seem also in reference to economic activity because in a further downturn scenario in which the ISM purchasing managers’ in dex in the USA drops into contraction territory (be low the 50-point level) and thus confirms fears of a recession, 12-month returns in particular for growth stocks are historically better than for value stocks, for Ourexample.interest-rate assessment in combination with the arguments laid out above prompted us to return our underweighting of growth stocks in our discretion ary investment mandates to neutral in July. Our very long-term stance on growth stocks fundamentally remains bullish. We are staunch adherents of the theory that above-average, profitable growth should be compensated with an excess return in the long run and that stocks with a long duration (i.e. shares of companies whose revenue and earnings lie far in the future) accordingly outperform. If the world of the future resembles the one of the last decade, the long-term growth/value ratio uptrend could contin ue to persist. But the question of whether we are at a proverbial “historical turning point” also with regard to this topic is definitely a legitimate query. Deglo balization, demographic trends and the risk of per sistently higher inflation rates are just a few of the factors that could cause us to find ourselves in a last ingly altered (interest-rate) regime in the future. In such a regime, growth stocks could potentially have a long way to fall relative to value stocks.
MSCI US Value vs Growth MSCI Europe Value vs Growth US 10yr yields (right) 08/2201/22 06/2202/22 07/2203/22 04/22 05/22
Growth Value Δ Growth Value Δ
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2252041821611391189675
Kaiser Partner Privatbank: Consecutive (annualized) contractions of 1.6% in Q1 and 0.9% in Q2 – according to the “two-down-quarters” rule of thumb, the USA is at least in a “technical” recession at the moment. But it’s far from certain and actually very unlikely that the National Bureau of Economic Research (NBER) –the official arbiter of recessions – will declare the cur rent economic slowdown a recession because for one
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Economic activity: Economic output in the USA con tracted in the first and second quarters of 2022. Is America now in a recession, or will the US Federal Reserve succeed in engineering a soft landing?
If the legislation enacted to promote green technolo
Questions stirring our clients (and the financial markets) gies is successfully implemented, greenhouse gas emissions in the United States will reportedly drop 40% below their 2005 level by 2030.
However, it appears plausible that it will shrink the USA’s federal budget deficit by a total of USD 300 billion over the next ten years particularly by rais ing taxes. But by far the most important signal sent by the legislative package concerns global climate policy because the USA has demonstrated that the world’s biggest economic power intends to make a substantial contribution to limiting global warming and wants to uphold the credibility of the Paris cli mate agreement. The power of this signal shouldn’t be underestimated. One highlight of the legislation is its pursuit of the ambition to install 950 million new solar panels and 120,000 new wind turbines by 2030.
We are always available to answer our clients’ questions and concerns regarding their portfolios. Once every quarter, we summarize clients’ most frequently asked questions and our experts’ answers and give you firsthand insights into our asset management and investmentoperations.advisory Riding a political tailwind | "Green" ETF up year-to-date iShares Global Clean Energy ETF Sources: Bloomberg, Kaiser Partner Privatbank 3530252015 01/2021 04/2021 07/2021 10/2021 01/2022 04/2022 07/2022
Ask the experts
What may sound like a lot at first actually is disil lusioning on closer observation because compared to efforts by the European Union, where emissions are slated to be slashed 55% below their 1990 level by 2030, the USA’s target really is rather modest, amounting to “just” 30% of the EU’s planned emis sion cuts. Despite its positive signaling effect, the In flation Reduction Act is insufficient to reach interna tional climate goals. The act’s target figures arouse criticism, but so does the way in which the US gov ernment plans to reach those targets. Unlike the Europeans, who are relying on efficiency standards for industry, quotas for renewable energy and espe cially CO₂ pricing, the Americans are concentrating on less efficient subsidies. Of the USD 370 billion of climate-related spending (over ten years) in the legislative package, more than half is earmarked for subsidies for solar, wind and hydroelectric power as well as for other renewable energy sources. Bil lions more are earmarked to fund new rebates on electric vehicles. The absence of CO₂ pricing merits criticism and could cause problems in the medium term if the EU levies a CO₂ emissions tariff on im ports from 2027 onward, as it says it intends to. The aim of the tariff is to make CO₂-intensive imports more expensive to protect European industry from cheap foreign competition. Any country that has a CO₂ pricing system similar to the EU’s would have to be exempted from the tariff. But the USA doesn’t have one for now, so a new source of potential trade disputes looms soon.
Kaiser Partner Privatbank: The Inflation Reduction Act implements major election campaign promises by President Joe Biden with regard to climate-pro tection, fiscal and healthcare policies. However, it is a compromise settlement and a significantly down sized version of the original Build Back Better pro gram, and it ultimately passed the US Senate by a razor-thin 51-50 vote. Experts definitely have their doubts about the extent to which the act will live up to its name and whether it will noticeably lower in flation on balance (in part by reducing drug prices).
Sustainability: The Democrats in the USA have pushed through the passage of the Inflation Reduction Act. What’s to be made of this legislative package, and how does it benefit our climate?
our
We answer the following questions on our investment blog: Investment strategy: Equity markets rebounded sig nificantly this summer. Is this merely a bear market rally, or is a new upturn already under way?
be always up
Inflation: Where is inflation headed, and is it worth while to hedge against rising energy prices? in the USA Sources: Kaiser more on our blog: to to date? up for newsletter us on Linkedin. Partner
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Recession… | …or false alarm? Economic growth
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thing, preliminary GDP growth estimates, which are all we have at this point, are chronically prone to sig nificant revisions. According to BCA Research, there’s a 35% probability that real economic growth for the second quarter will get revised upward into positive territory. Moreover, when determining a recession, the NBER doesn’t just take GDP growth into account, but also factors in a vast array of other economic data points including statistics on the labor market, consumer and business spending, industrial produc tion and real income. All of those components have registered declining growth rates in recent months, but are still well in positive territory. So, the NBER is unlikely to retrospectively define the weak first half of 2022 as a recession.
Geopolitics: The conflict between China and Taiwan continues to heat up. How great of a risk does this pose, and how should investors position themselves?
Kaiser
Even the White House itself felt compelled to publish a blog post (“How Do Economists Determine Whether the Economy Is in a Recession?”) arguably to counter the recession chatter that has led to a new recordhigh number of Google search queries on the “R” word. The United States not being in a recession at the moment of course doesn’t mean that it won’t slip into one soon. Depending on the analyst and model consulted, there’s a 30% to 50% probability of a reces sion occurring in the next twelve months. We do not exclude ourselves from the probability guessing game and consider the middle of the aforementioned range a thoroughly realistic estimate because the balancing act that the Fed has to execute is tremendously diffi cult. In order to lastingly reduce price and wage pres sure and push inflation back down to a level of 2% to 3%, the still-booming US employment market needs to be cooled down massively. However, it’s question able that this can be done without further vigorous interest-rate hiking (possibly to far above the 3% level) and without significantly raising the unemploy ment rate by at least half of a percentage point, which in the past has invariably resulted in a recession. The path to a soft landing is extremely narrow.
The election campaign in the middle of summer was a novelty for the vacationing Italian public and politi cians alike. Surveys indicate that a center-right coalition has the best chances of winning a majority of votes. However, projections were less than perfect during the last two elections.
September 25: Parliamentary elections in Italy
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On our Agenda Asset classes & agenda
October 2: Presidential election in Brazil
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September 13: Liechtenstein Finance Forum
Asset class YTD 1 Month 1 Year 3 Years
One hundred forty-eight million registered voters will go to the polls at the start of October to elect a president and vice-president. Everything appears to be heading to a showdown between right-wing populist incumbent Jair Bolsonaro and left-wing former president Luiz Inácio Lula da Silva.
Performance as of 31 August 2022
Cash CHF 0.0% -0.5% -1.9% EUR 0.0% -0.4% -1.3% USD 0.2% 1.0% 2.4%
Fixed Income Sovereign bonds -2.9% -10.6% -9.4% Corporate bonds -3.6% -18.0% -9.5% Microfinance 0.3% 2.1% 7.6% Inflation-linked bonds -4.0% -10.4% -1.1% High-yield bonds -3.4% -10.6% 0.2% Emerging-market bonds -1.3% -21.3% -15.1% Insurance-linked bonds 0.9% 3.3% 15.3% Convertible bonds 0.1% -19.4% 25.9% Equities Global -3.5% -11.3% 32.1% Switzerland -3.1% -12.0% 12.7% Europa -5.0% -15.4% 9.2% UK -1.3% 9.2% 13.5% USA -4.0% -13.5% 39.8% Emerging markets 0.0% -24.0% 1.0% Alternative assets Commodities -0.2% 26.7% 58.0% Gold -3.1% -5.7% 12.5% Real estate Switzerland -1.0% -12.5% 9.6% Hedge funds 1.2% -3.7% 10.2% Currencies EUR/USD -1.6% -14.9% -8.5% EUR/CHF 1.0% -9.1% -9.7% GBP/USD -4.5% -15.5% -4.4% -0.2%-0.3% 0.9% 0 -9.5% -16.3% 1.0% -11.7%-11.1% -19.3% 0.2% -16.4% 0 -17.1%-15.2%-14.8% 3.9% -19.3%-17.4% 0 22.7% -6.5% -12.9% -3.4% 0 -11.6% -5.3% -14.1% -0.2%-0.3% 0.9% 0 -9.5% -16.3% 1.0% -11.7%-11.1% -19.3% 0.2% -16.4% 0 -17.1%-15.2%-14.8% 3.9% -19.3%-17.4% 0 22.7% -6.5% -12.9% -3.4% 0 -11.6% -5.3% -14.1% -0.2%-0.3% 0.9% 0 -9.5% -16.3% 1.0% -11.7%-11.1% -19.3% 0.2% -16.4% 0 -17.1%-15.2%-14.8% 3.9% -19.3%-17.4% 0 22.7% -6.5% -12.9% -3.4% 0 -11.6% -5.3% -14.1% -0.2%-0.3% 0.9% 0 -9.5% -16.3% 1.0% -11.7%-11.1% -19.3% 0.2% -16.4% 0 -17.1%-15.2%-14.8% 3.9% -19.3%-17.4% 0 22.7% -6.5% -12.9% -3.4% 0 -11.6% -5.3% -14.1% -0.2%-0.3% 0.9% 0 -9.5% -16.3% 1.0% -11.7%-11.1% -19.3% 0.2% -16.4% 0 -17.1%-15.2%-14.8% 3.9% -19.3%-17.4% 0 22.7% -6.5% -12.9% -3.4% 0 -11.6% -5.3% -14.1%
Under the title “Sea Change in the World of Finance”, the eighth edition of the Finance Forum in Vaduz will once again bring together hundreds of decision makers from the German-speaking world. The agenda at the Forum will include discussions about the challenges facing the financial industry and sustainability in Liechtenstein’s financial sector.
Kaiser Partner Privatbank AG | Monthly Market Monitor - September 2022 17
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Monthly Market Monitor - September 2022 | Kaiser Partner Privatbank AG18
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