The macroeconomic ecosystem continues to be the dominant topic. It was further ignited by the recent central bank decisions. While markets were rather optimistic from the US perspective, it does not apply to Europe. With the recent break from interest rate hikes by the Fed, it felt like a turnaround point. However, the Fed hinted that this was merely a break and that further hikes are not unlikely. Following the good results of the inflation data in May 2023, the Fed halted an interest rate hike for now. As of May, the inflation declined to 4%, down from 4.9% in April. These positive results mainly stem from a substantial decline in energy prices. While the development was similarly positive in Europe, inflation remains above 6%. Central bank representatives highlighted that the fight against inflation is not won yet. Hence, it was not surprising that rates were raised to 3.5%. In Switzerland, inflation has never been such a tremendous issue. Nonetheless, the Swiss National Bank also raised its rates, but only by 25bps. The most surprising move came from the UK. The BoE hiked rates to 5% through a 50bps increase. Market participants expected a 25bps hike and the BoE earned substantial critics for that move. The move likely came from the still very high inflation rate of 8.7%. Figure 1 shows the total development of interest rate hikes from the US, EU, UK, and Switzerland since the beginning of 2022. The positive news from the US also had a substantial impact on the equity market. As of the time of writing, the S&P 500 is up another 4% in June and 14% YTD. Although the Fed highlighted rate hikes might not be over, the break in hiking alongside the declining inflation is a promising sign that rates will “soon” come down and the projected recession might be averted. In particular, big tech has reacted strongly to the news, which remains the driver of the exceptional performance of the stock market this year.
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