July – Deal or no deal
The day of reckoning is upon us. August 1st is not only the Swiss national day, but also the day the previously postponed tariffs come into effect. A few major economies and trading partners have done some sort of deal with the USA, such as EU, Japan, South Korea, but others remain stuck at the negotiation table, such as Canada and Mexico. Keep in mind that those deals don’t remove tariffs, they just lower them and offer a degree of certainty that markets tend to welcome.
July was also a month rich in market data, company half-year results and central bank meetings. Those were positive overall and helped all major stock markets move higher this month.
The Big Beautiful Bill was also signed into law at the beginning of the month. Some may be happy because of the extension of the tax cuts enacted during Trump’s first term, and in many cases the further tax savings for richer taxpayers. Others will see benefits for the most vulnerable members of society being chipped off and additional debt being passed down to future generations. The stock market reaction was rather muted, while the bond markets didn’t like it, with long-term yields going up on the back of the perceived worsening fiscal health of the government.
Data source : Bloomberg
In the US, inflation shot up to 2.7%, unemployment figures remain healthy, and PMIs are in expansion mode. That and the Fed bent on showing its independence from political interference explain why interest rates were left unchanged for now. At the same time, half year earnings are vastly positive and encouraging, helping the stock markets justify new record highs. Just on the last day of the month, big tech companies Meta and Microsoft released very strong results.
In Europe, the European Central Bank left interest rates untouched. The Bank of England will be meeting in a week, with experts expecting a split decision on a potential rate cut. More importantly, the trade deal, setting tariffs on products out of the EU at 15%, was received slightly negatively by European stock markets, in particular the automobile industry. Despite this, Eurozone Composite PMI managed to rise (both for services and manufacturing), inflation remained stable at 2% and earnings’ announcements poured in, full of optimism.
Our summary recommendations
With markets continuing to go up and volatility remaining low, we have seen increased interest in capital guaranteed products to mitigate the risk of a correction and timing error.
We also opportunistically structured our favored reverse convertible product with downside protection and have otherwise remained put in fixed income and long only equities.
We are currently doing our due diligence on a couple of evergreen private investment funds, as we expect better risk adjusted performance in this space in the mid term and strong demand from clients.
Chart of the month
Last month, the chart we showed was about the big increase in the price of oil. This time we are showing the average price of US electricity.
Over the last 2 months, electricity has gone up close to 9% in the US. The last time it was this high was in 2022, following increased demand after the pandemic, supply chain disruptions and the war in Ukraine.
One of Trump’s campaign promises was to slash the cost of energy in half. Instead, it is going up and experts expect it to remain high well into 2026. This is one argument Democrats are likely to use against Trump during the Mid-Terms.
Source: Bloomberg
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