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The economy is showing increasing signs of weakness. Some countries are already in a technical recession, and others will follow. The Purchasing Managers’ Index not only reflects the poor sentiment in the manufacturing sector but is also trending downwards in the services sector. “A further decline is expected in the coming months, and a classic recession remains likely”, states Gerlinger.

Europe, and particularly Germany, suffer from weak international demand, and China is not contributing due to ongoing structural problems: The real estate market is in a confidence crisis, and hopes for a major stimulus package from Beijing have been dashed. “The government and central bank have so far limited their actions to small gestures”, Gerlinger comments. In contrast, developments in the US provide some support to the global economy. Fiscal stimuli and strong job market figures make the economic situation across the Atlantic seem somewhat better than in Europe. The expected economic downturn in the US could be mild.

In this context, major central banks remain restrictive. “However, the peak of interest rates is likely near”, Gerlinger opines. This is especially true for the United States, where the inflation rate has recently fallen to 3.2% due to sharply declining energy prices. Furthermore, wage price momentum is decreasing. “Achieving the central banks’ inflation targets is now more realistic”, adds Gerlinger.

In Europe, however, inflation remains high and disappointed with 5.3% in August. Energy, in particular, has not been getting cheaper as quickly as expected. The European Central Bank (ECB) thus operates in a particularly challenging environment of persistently high inflation and an economy further burdened by higher interest rates. “The ECB will probably make only one more interest rate hike”, Gerlinger predicts.

Counteracting developments are also determining the events in the stock markets. For instance, the prospect of the end of the interest rate hike cycle is supportive. “This is true for the tech sector, which benefits not only from the hype around AI but also from the prospect of a change in interest rates”, Gerlinger points out. The withdrawal of liquidity, on the other hand, is negative for risk assets. The Purchasing Managers’ Index does not bode well for the near future, and there is a contradiction with the still-positive earnings expectations of companies. “Investors are faced with significant uncertainty”, Gerlinger concludes, “which is why we prefer stocks from defensive sectors.”

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