May closed with a veritable rally in equity markets. The major indices recorded strong high single-digit gains. The valuation declines seen at the beginning of March have long since been recovered, with new year-to-date highs reached. In addition, the IPO of SpaceX scheduled for June – expected to be the largest in history – is approaching. At the same time, the economic environment remains tense. While growth continues to be relatively robust, the broadly increased inflationary pressure is posing greater challenges for monetary policy.
This month, Patrick Müller is joined by Johannes von Mandach, Head of Economic Research at Wellershoff & Partners Ltd., who is representing Klaus Wellershoff.
Economic growth: Solid, but cautious ahead of new data
The ongoing conflict in the Middle East is leaving increasingly visible marks on the global economy. Rising energy prices in particular are weighing on household confidence and budget capacity. In this context, a slowdown in consumer activity can be observed worldwide.
Nevertheless, the global economy has so far avoided a noticeable downturn. Companies have become more cautious, but have not yet significantly curtailed their investment activity. The coming weeks and months are likely to become a real test, especially as the closure of the Strait of Hormuz is increasingly raising questions about security of supply.
Inflation: Inflationary pressure is rising again
The ongoing closure of the Strait of Hormuz is continuing to push global inflationary pressure higher. This is particularly evident in the United States, where the headline inflation rate has risen to 3.8 percent, almost double the target level of the US Federal Reserve (Fed).
How far inflationary pressure will spread and pass through to other goods and services, and thus also become visible in the core rate, will depend largely on the state of the economy: the more robust economic activity remains, the greater the risk of broader price pressures and the stronger the pressure on central banks to act.
Monetary policy: No immediate pressure on central banks to act
The Iran conflict and sharply rising energy prices have further intensified the monetary policy challenges facing the major central banks. As a result, upside risks to inflation and downside risks to growth have increased at the same time. However, as long as it remains unclear which effects will prevail, central banks are likely to remain limited in their willingness to act.
Switzerland continues to be in a comparatively comfortable position. Despite higher energy prices, inflation remains moderate, which means that the Swiss National Bank is unlikely to see any immediate need to adjust its monetary policy for the time being.
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