Due to the Easter holidays there will be no weekly review on Monday. Instead, please find below the most interesting points and data of the current week, until now :
The published US macroeconomic data showed big negative surprises, in a sign that the recent banking crisis as well as the previous aggressive interest rate increases are starting to have an impact on economic activity. The ISM Services Index for March dropped to 51.2, down from 55.1 in the previous month and against expectations for 54.0. The New Orders component of the index collapsed 10 full points to 52 from 62. The ISM Manufacturing fell to 46.3, well below expectations of 47.5 and compared to 47.7 of the previous month. This is the lowest level since May 2020, which was the second month of the pandemic breakout.
The US labor market has started showing some deterioration. The JOLTS Job Openings index was announced at 9.9mn jobs, down from 10.6mn in the previous months and against expectations for 10.4mn. Admittedly the 9.9mn job openings is still a robust number, but the fall of almost half a million in a single month shows a significant deterioration. Tomorrow the March non-farm payroll number will be closely watched. The official forecasts are for 200'000 people finding a job, but the latest turmoil might have impacted these figures. The labor market is seen as the "last man standing" , meaning that it has shown remarkable resilience despite the negative environment of high interest rates and lower demand. If this starts to crack, then the scenario of an upcoming recession will gain momentum and probably become a reality sooner than later.
Swiss March inflation was announced lower than expected. The CPI fell to 3.0% against expectations for a fall to 3.2% and 3.4% in the previous month. Switzerland is enjoying rather low inflation , but the Swiss Central Bank is more influenced by the moves of the ECB when implementing its monetary policy.
Defensive equity sectors, such as Healthcare, Food&Beverage and Utilities started outperforming. Investors rushed to buy shares of these sectors, which up to very recently had performed quite badly compared to the cyclical or economic sensitive industries, such as Banks, Autos, Semiconductors etc. Swiss stocks have risen by more than 2% while the Euro-Stoxx index is negative for this week. In the last three days, Healthcare is already up by almost 3%, while most indices are still negative for the week.
Bond prices have been moving higher (yields lower). The recession fears are proving beneficial to quality bonds , as was expected. The 2-year US yield has now dropped to about 3.70%, which can be compared to the 5%+ levels , where about a month ago.
A lot of activity is observed these few days, with respect to the Russia-Ukraine situation. France's President, Mr. Macron, is visiting China and meeting President Xi-Jinping, with the war being one of the subjects to be discussed. He will be joined by the European Commission President, Mrs. Ursula von der Leyen on the trip. At the same time reports out of Ukraine are talking about the local governemnt being ready to discuss the Crimea status , if this were to lead to a peace agrrement.
The Q1 2023 corporate results season is about to begin in the US, with major banks reporting next Friday. Overall, the S&P500 is expected to show a 6% drop in profits compared to the same period of last year. For the full year, profits are expected to show a 2% growth compared to 2022, which means that profits are expected to re-accelerate significantly in the second half of this year. This assumption might prove over-optimistic. Our base case scenario is for profits to remain at last year's levels , at best.
• The content of this document has been produced from publicly available information as well as from internal research and rigorous efforts have been made to verify the accuracy and reasonableness of the hypotheses used. Although unlikely, omissions or errors might however happen.
• The data included in this document are based on past performances and do not constitute an indicator or a guarantee of future performances. Performances are not constant over time and can be positive or negative.
• This document is intended for informational purposes only and should not be construed as an offer or solicitation for the purchase or sale of any financial instrument and it should not be considered as investment advice. The market valuations, views, and calculations contained herein are estimates only and are subject to change without notice. Any investment decision needs to be discussed with your advisor and cannot be based only on this document.
• This document is strictly confidential and should not be distributed further without the explicit consent of Kendra Securities House SA.
• Sources: Chart of the Week :