Double or Nothing

The macro point

Watch this week: new trade tensions are possible as we approach April 2nd—the date for new tariffs by the Trump administration.

As expected, the Bank of England and the U.S. Federal Reserve (Fed) did not change their monetary policies. The Fed's rate was maintained between 4.25% and 4.50%. Additionally, it lowered its GDP forecast for 2025 to 1.7% from 2.1%. Thus, U.S. growth could fall below its potential (estimated at 2%). However, the recession feared by many analysts still seems distant. Unsurprisingly, this forecast is subject to much uncertainty due to the vagaries of the trade war and the difficulty in knowing how many jobs will be cut via DOGE (probably one million direct and indirect jobs, according to our estimates). Regarding inflation, the Fed raised its core PCE forecast (which better measures structural inflation) from 2.5% to 2.8%. This is not surprising. Again, a catastrophic scenario is avoided. The central bank rightly does not fear an inflationary surge due to the tariffs. Important point: the dot-plot (rate evolution forecast by FOMC members) has been updated. The median forecast is still for two rate cuts totaling 50 basis points this year. Four members now anticipate no rate cuts in 2025, compared to only one during the December meeting. For our part, we still predict only one rate cut, which is consistent with our inflation forecast of 3%. No rate movement is anticipated for May. The probability of a rate cut is 16% on the money market.

The Swiss National Bank (SNB) was the only one to act last week. As expected, the policy rate was cut by 25 basis points to 0.25%. Additionally, the central bank confirmed its willingness to intervene directly in the foreign exchange market if the franc continues to strengthen. In its communication, the SNB highlighted uncertainties weighing on the global economy and, consequently, on Swiss economic prospects. This suggests that future monetary policy meetings could lead to unexpected decisions. The evolution of the Swiss franc, influenced by global market risk sentiment, will continue to have a significant impact on Swiss inflation, particularly for imported goods. With overall inflation at 0.3%, the risk of it slipping into negative territory is real. We cannot exclude the possibility that the SNB may have to revert to negative rates in the medium term.

Point to keep in mind: there is a slight panic in trading floors and among institutional investors. Unusually, American institutions have massively imported gold. We are indeed talking about gold bars, from Swiss foundries, amounting to several billion dollars for the sole month of February. This is completely unusual. In times of risk aversion, many investors buy gold but through financial products. It is very surprising, however, that they decide to turn to physical gold, which implies, among other things, a high storage cost. Why this out-of-the-ordinary behavior? Some mention the risk of a recession. Others expect the Trump administration to aim for a gigantic devaluation of the dollar and, as was the case in the 1930s, the best way to guard against it is to acquire a tangible asset. Is this a credible risk? Probably not… But with the current U.S. administration, one can never be sure of anything.

Finally, among emerging countries, the notable event of last week is the collapse to a historic low of the Turkish lira against the dollar and the euro, following the arrest of the mayor of Istanbul, the main opponent to President Erdogan's regime. This is a reminder of how volatility and political risk can go hand in hand in emerging countries, especially those where the rule of law is violated. The task of the Turkish central bank to reassure foreign investors will be immense.

Technical point

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