The new year for the stock markets began with a credible shift in the global economy’s outlook, which, however, has already defied the forecasts of most economists for three years running, who were stubbornly oriented toward a slowdown in the economy that has never materialized. <\/p>\n\n\n\n
Even the latest recession warnings sounded last April, in connection with the new US administration’s provocative approach to tariff policy, proved unfounded, given that in the nine months since, the US economy has grown by an average of 3.5% in terms of GDP. For the fourth quarter just ended, growth of 4.5% is estimated, thanks in part to an additional $500 billion in defence budget allocations. Inflationary fears also proved misplaced, impacting the Fed’s actions, which significantly delayed its decision to reduce interest rates. This significantly delayed the ECB’s similar decision, which allowed European stock markets to partially keep pace with US markets last year. <\/p>\n\n\n\n
Disinflationary factors, such as falling energy prices, falling real estate values, and above all the steady increase in industrial productivity linked to the marked implementation of artificial intelligence, have thus far kept the phenomenon largely under control. However, this very positive outlook, not only for the US economy but also for the global economy, casts a cloud over the future dynamics of international stock markets. Indeed, the prolonged bullish phase of the major global stock markets over the past three years is primarily due to the constant increase in liquidity in various credit systems, in response to the monetary policy decided from time to time by central banks. To quantify this relationship with a single example, consider that thanks to the accommodative policy pursued by the Fed on and off since April 2009, the S&P 500 index has risen from a low of around 670 points to its current level of nearly 7,000. Therefore, the risk currently looming is that the ongoing economic recovery will drain the excess liquidity that has thus far fueled demand for stocks, favoring a significant weakening of prices, presumably in the second half of the year. In practice, as long as the economy remained low or stagnant, unused liquidity from the real economy flowed to the stock market, but this situation could now change. It should also be noted that the peak in surreptitious liquidity creation likely occurred at the end of the second quarter of 2025, giving way to a slow but progressive reduction in liquidity globally, depending on the various central bank policies. At year-end, global systemic liquidity amounted to $24.6 trillion, an increase of $421 billion over the period. This balance, however, reflects a $1.3 trillion increase in the first half of the year, followed by a $876 billion reduction in the second half of 2025.<\/p>\n\n\n\n
Specifically, over the past year, the Bank of Japan, the Fed, and the BoE drained liquidity from their respective systems, while the ECB, the SNB, and especially the Chinese Central Bank injected liquidity. The significant extent of China’s monetary easing explains the excellent annual performance of both local stock markets and, more generally, nearly all Asian markets. The Chinese central bank has no alternative, as the deflationary phase underway for about two years requires a recovery in domestic demand, which can only be achieved through accommodative policy at the expense of the yuan’s stability. An important consequence of this decision is the marked appreciation of gold, which has been the subject of massive purchases by domestic investors concerned about the possibility of currency devaluation. Clearly, the rise in the yellow metal also coincided with the peak of systemic liquidity, raising questions about its value’s resilience when monetary inflation is perceived to be slowing. The likelihood of a decline in systemic liquidity in the second half of the year would be further supported by refuting the prevailing view regarding the prospects of dollar parity. Indeed, since the inauguration of the new US President, the prevailing belief among international investors is that the greenback has entered a structural phase of weakening, which would lead to its decline as a global currency and therefore a safe haven. Aside from common-sense considerations, which ask who in the world can currently compete with the economic, political, and military power of the US, an interesting observation can be made by observing the annual performance of the US bond sector. Ten-year yields have fallen from 4.60% to 4.20% over the past 12 months, demonstrating satisfactory demand for them, which contradicts the common belief that the dollar will devalue and lose its status as a safe haven. If there were a lack of confidence in the greenback, the market would demand higher returns to invest in its securities. The dollar’s external parity is very important for assessing the future level of systemic liquidity, as there is an inverse relationship between the value of the dollar and that of global liquidity. Indeed, the parities of other currencies used to denote international liquidity rise when the dollar weakens, increasing its value. Therefore, the theory of a prospective reduction in the dollar would also be fueled by the potential appreciation of the dollar in the second half of the year, further fueled by the massive short positions accumulated on the foreign exchange market in recent months, which would be closed in the event of a reversal of the trend. In the equity market, investors’ continued appetite for risk is evident, evidenced by the highest equity exposure in the last 21 months, led by the Chinese stock market, followed by Asian markets. In developed markets, interest is focused on European markets, while the US stock market remains neutral. Looking ahead, greater volatility can be expected, as evidenced by the indices’ reaction to the US President’s latest outburst in recent trading sessions, and a subsequent weakening that favors investments more closely tied to the real economy and directed towards the more defensive sectors of the economy, rather than the lagging energy sector. Sectors such as finance, technology broadly defined, and raw materials, which have recently seen significant gains, could face the greatest risks.<\/p>\n\n\n\n
Nicola Bravetti Data Source: Bloomberg<\/em><\/p>\n\n\n\n \u201cThis report cannot \u2013 nor can \u2013 be consider a solicitation to invest in financial instruments.\u201d<\/strong><\/em><\/p>\n","protected":false},"excerpt":{"rendered":" The new year for the stock markets began with a credible shift in the global economy’s outlook, which, however, has already defied the forecasts of most economists for three years running, who were stubbornly oriented toward a slowdown in the economy that has never materialized.<\/p>\n","protected":false},"author":1,"featured_media":5412,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2,47],"tags":[17,15,16,18,19],"class_list":["post-5917","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-markobs","category-obs26","tag-bravoadvisory","tag-market","tag-observer","tag-switzerland","tag-ticino"],"_links":{"self":[{"href":"https:\/\/www.bravettinicola.ch\/index.php?rest_route=\/wp\/v2\/posts\/5917","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.bravettinicola.ch\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.bravettinicola.ch\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.bravettinicola.ch\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bravettinicola.ch\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=5917"}],"version-history":[{"count":1,"href":"https:\/\/www.bravettinicola.ch\/index.php?rest_route=\/wp\/v2\/posts\/5917\/revisions"}],"predecessor-version":[{"id":5918,"href":"https:\/\/www.bravettinicola.ch\/index.php?rest_route=\/wp\/v2\/posts\/5917\/revisions\/5918"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.bravettinicola.ch\/index.php?rest_route=\/wp\/v2\/media\/5412"}],"wp:attachment":[{"href":"https:\/\/www.bravettinicola.ch\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=5917"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.bravettinicola.ch\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=5917"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.bravettinicola.ch\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=5917"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}