Thomas Trauth, Blue Horizon Wealth Partner AG (Foto: Blue Horizon).
Zurich – September growth indicators showed some weakness. The US ISM manufacturing index slipped to 56.6 from 59 in August. Since a figure above 50 signals growing economic activity, the reading remains strong in absolute terms and we do not regard this as worrying. All the more so since US non-farm payrolls rose by 248,000 in September up from 180,000 in August. This shows continued job creation in the US economy and led the US unemployment rate to fall to 5.9%.
From Thomas Trauth, Blue Horizon
The German IFO business sentiment index, however, dropped to its lowest level since 2012 with a September reading of 104.7, following 106.3 in August (see Fig. 1). Also, Germany’s Q2 output fell 0.2% versus Q1, which signals more fundamental weakness in what is usually Europe’s pace-making economy. The USD continued to strengthen with the EUR-USD exchange rate falling to 1.26 at the End of September. In October the EUR rebounded somewhat, which we rather see as a technical correction after the large shift of recent months. Commodities, in general, were hit hard in September. The Dow Jones UBS commodity index fell 6.2% during the month. Almost all commodity prices corrected down, which is consistent with general growth fears. Also, gold prices fell almost 6% in September to retrench somewhat recently. The gold price was very close to break below USD 1,200. We find it truly remarkable that oil prices, despite ongoing geopolitical tensions, sold off significantly. The price of Brent fell below 90 USD per barrel.
Bearish on US Treasuries and bullish on the USD
The current market correction proved to be significantly more painful than previous downward moves. The German Dax, the broader European indices, and the Japanese Nikkei index have been pushed to negative year-to-date performances. Based on our view that recession concerns are probably exaggerated and since valuations look more attractive now, we would either stay invested or buy on dips. For US stocks the earnings season has just started. Since earnings expectations look rather moderate there is a good chance for upside surprises, which could support the market. Compared with credit, we still prefer equity. We remain bearish on US Treasuries and bullish on the USD.
