Monthly Outlook - May 2023

Summary of the month

Since 2007 and in a fairly linear fashion, the Swiss franc has appreciated by +3.6% y/y against its major peers. Stock indices rose, boosted by signs that inflation was moderating and a surprisingly positive start to the earnings season, particularly from banks and technology majors.

However, the global economic outlook and other economic data were weaker than expected. The employment cost index, the Fed's preferred measure of inflation, rose more than expected, while consumer confidence fell to the lowest level since July.

The entire market seems to be betting on May being the end of rate hikes, and while this could be the case, the market also expects rate cuts to take place within the next 12 months. Recessions generally begin after rate cuts end, so we remain skeptical of market rebounds until data shows otherwise.

Macro Corner

Macroeconomic data was mixed for the month, even though most major indices showed positive performance in April. The market is expecting a final 25 basis point hike in May and is already anticipating the end of the hiking cycle initiated by the Fed last year. Despite the recent risk to the mood caused by this anticipation, we remain cautious as we believe many headwinds and cracks have been created by the last hiking cycle.

The risk to sentiment began earlier in the month, when March CPI was announced and showed some moderation in inflationary pressures, with the index at 5% annualized, up from 6% in February. However, the core CPI, which excludes food and energy prices, rose 5.6%, closer to expectations and higher than February.