Market overview: Sigh of relief

The bond markets in the USA and Switzerland rose last month, likely in large part as a result of growing economic concerns. 

Indexed performance of government bonds in local currency

100 = 01.01.2025

The US and Swiss bond markets saw significant price gains last month. Following weak labour market figures, the gains were particularly strong in the USA, with the data for July showing not only a low number of new jobs created, but also significant downward revisions for the two previous months. This fuelled fresh economic concerns, but at the same time also raised hopes that the US Federal Reserve would ease its monetary policy in September. Most observers now expect an interest rate cut of 25 basis points. In Switzerland, government bonds also made strong gains as economic expectations were adjusted downwards in response to the shock of 39-percent tariffs.

Trend in 10-year yields to maturity

In percent

At just over 4.3 percent, 10-year yields to maturity in the USA are currently down slightly month-on-month. We have however recently seen renewed upward pressure, in particular from producer prices, which rose significantly last month, partly as a result of tariffs increasing the cost of imports. This indicates that the initial effects of the new tariff policy – which is also likely to fuel inflation again in the near future – are now being felt. In Switzerland, yields on 10-year government bonds are also again down significantly, and at just over 0.2 percent almost as low as last seen before the monetary policy turnaround in spring 2022.

Credit spreads on corporate bonds

In percentage points

Credit spreads on corporate bonds remain at or close to their historic lows. In Europe and the USA, they fell again last month. The much higher punitive tariffs now imposed have done nothing to change this. In April, spreads widened significantly in the context of the US trade dispute. Worries about recession therefore continue to play virtually no role in the corporate bond market, despite the fact that the risk of recession in the USA and around the world has grown again recently.

Most equity markets gained ground last month. At present, there appears to be a sense of relief that while the newly negotiated punitive tariffs with the USA are significantly higher than the previous base tariffs of ten percent, they are in many cases below the rates originally threatened.

Indexed stock market performance in Swiss francs

100 = 01.01.2025

Last month, in light of the August 1 negotiation deadline, the main focus of the markets was on the final stages of the US tariff negotiations. It became increasingly clear that the new average tariff rate would be significantly higher than the previous base tariff of ten percent. However, the stock markets reacted with extraordinary calm, with no trace of the turbulence seen at the beginning of April. In fact, most stocks around the world again made significant gains, with the Swiss market being one of the few to trend sideways. Even so, given the unexpected shock of 39-percent tariffs, this is remarkably robust.

Momentum of individual markets

In percent

Despite the new and significantly higher punitive tariffs now in place, momentum on the stock markets remains in positive territory overall. Upward momentum was particularly strong on the Asian stock markets, for example in Japan. Despite a 15-percent tariff agreement, the Japanese stock market again made significant gains last month, even hitting a new all-time high. The lower tariff rate clearly met with greater satisfaction than the flat 25-percent tariff previously threatened. By contrast, momentum in Europe and Switzerland weakened somewhat, although given new tariff rates of 15 and 39 percent respectively, it is striking to see that momentum continues to be in positive territory.

Price/earnings ratio

Price-earnings ratios (P/E ratios) worldwide, in Switzerland and in emerging markets rose significantly last month. This was likely mainly driven by the positive performance of the stock markets. The current reporting season is making it clear that despite the trade dispute, companies generated solid profits last quarter. The performance of US technology companies in particular was very impressive.

Exchange-listed Swiss real estate funds remain close to their highs. Returns remain clearly positive on an annual basis.

Indexed performance of Swiss real estate funds

100 = 01.01.2025

Month-on-month, there was little change in exchange-listed Swiss real estate fund prices. Having trended mostly sideways since May, they have recently gained momentum and are trading close to their highs. This recent momentum is likely to be largely related to the decline in capital market interest rates in Switzerland, which fell in the face of growing economic concerns surrounding US tariff policy.

Premium on Swiss real estate funds and 10-year yields to maturity

In percent

The premium paid by stock market investors versus the net asset value of properties remains well above the long-term average. Higher premiums have so far only been seen during periods of negative capital market interest rates. We are not too far from that at the moment. 10-year yields to maturity are currently just above zero.

3-month SARON and 10-year yields to maturity

In percent

Yields to maturity on 10-year Swiss government bonds are currently at just over 20 basis points, close to their lows for the year. They are also only slightly above the 3-month SARON, which currently stands at zero percent. Despite growing worries about the economy in connection with the shock US tariffs, market participants are not currently expecting any return to negative interest rates at the Swiss National Bank’s (SNB) September assessment.

Currencies

Last month, the curve of the US dollar’s downward trend flattened out for the time being. The Swiss franc, by contrast, was somewhat weaker, no doubt suffering in particular from the shock US tariffs.

Source: Allfunds Tech Solutions

Last month saw an end to the US dollar’s period of weakness for the time being, as it trended generally sideways. Nevertheless, on a trade-weighted basis, the greenback has still fallen by ten percent since the beginning of the year. The franc, by contrast, weakened for the first time, as the Swiss currency fell significantly in the aftermath in particular of the shock tariffs at the end of July.

^{Source: Allfunds Tech Solutions, Coin Metrics Inc}

Gold

The gold price, measured in Swiss francs, rose slightly again last month.

Indexed performance of gold in Swiss francs

100 = 01.01.2025

With strong demand for the precious metal this year, it rose by just over one percent last month, measured in Swiss francs, and is now up more than 14 percent since the beginning of the year. Demand for gold was boosted in particular by the flare-up in the trade dispute with the USA in April. Since then, however, the gold price has trended mostly sideways.