World markets rally as cheap money policy continues

SMI

The Swiss Market Index is set to finish the week notably higher, although under-performing global stocks amid optimism that central banks will continue to support equities by keeping interest rates at historic lows and providing markets with additional liquidity.

Economic Data

Global equities experienced a “relief rally” after crucial central bank policy meetings in Japan and the US indicated that the era of cheap money has further to run. Federal Reserve Chair Janet Yellen offered an upbeat assessment of the economic outlook but noted that a cautious approach in paring back monetary support remains appropriate.

SMI vs. MSCI World Week September 24

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SMI vs. MSCI World

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Swiss Economic Data

In Switzerland, the Swiss National Bank (SNB) reported its quarterly bulletin this week and said that it remains broadly optimistic about the economic outlook. However, it does expect growth rates to be weaker over the second half of 2016 due to expected economic weakness within the wider European region. Overall, an easing of concerns around deflationary pressures and a small narrowing of the output gap will lessen the pressure for any further monetary easing by the SNB as long as there are no major external shocks. The bank remains committed to negative rates in the short term given the continued over-valuation of the Swiss franc.

Swiss Companies

This week Swatch and Richemont were among the biggest winners in the SMI after speculation that Swiss watch exports are stabilising. Although Swiss watch exports fell for the 14th consecutive month (-8.8%), the market responded positively to the numbers as analysts had expected a steeper, double digit contraction. The surprise of the report was that China, Singapore and UK demand recovered briskly. Despite the recovery in key markets, the overall near-term outlook is fragile and expectations for growth in EM Asia remain subdued.