By Pictet AM

It’s completely overlooked. Yet it’s fundamental. Energy prices (oil, gas, electricity, petrol) are falling everywhere. Brent crude has fallen by 5% since the start of the year, for example. For the first time since 2011, asset managers – who usually have a rather conservative attitude – are mostly positioned to sell. The situation is similar for gas. The amount of short positions held by hedge funds is at a record high. Admittedly, falling prices are often due to weaker-than-expected demand, particularly from China. But it’s better to see the glass as half full rather than half empty. The fall in energy prices is a groundswell that will support economic activity in the fourth quarter, and especially next year.

To make matters worse, there was also some improvement in agricultural commodities. Coffee prices continue to soar. But we may soon see a drop in rice prices. On September 13, India announced it was lifting some of the export restrictions on rice it had put in place a year ago. This led to a 25% price surge for basmati rice.

We have one last piece of good news to share with you: initial public offerings (IPOs) are starting up again. Not in Paris, for the moment. But in emerging countries. Last week, India saw its biggest IPO of the year. Bajaj Housing Finance – a financial institution specializing in mortgages for individuals and companies – saw its share price rise by…130% on its first day of trading on September 16! The company’s ambition was to raise a modest $781 million. In the end, demand reached…$40 billion! Incredible! The Indian stock market is inescapable.

Outlook

The back-to-school period for central banks continues. Our attention is focused on Thursday’s meeting of the Swiss National Bank (SNB). Market rumors point to the possibility of a 50 basis point rate cut. This seems unlikely to us. We’re counting on a 25 basis point cut – the third since the start of the monetary easing cycle – accompanied by an increasing risk of direct intervention by the central bank in the foreign exchange market to curb the rise in the Swiss franc. This is a major risk, and one that the market is currently ignoring.

Did you know?

The European Union is the ONLY region in the world where meat production is declining. And which country’s meat production has fallen the most? France, with a one-third drop in 25 years! The cause: the low profitability of certain farms and increasingly stringent environmental standards.