A clearer vision with fog-lights

Banque SYZ & CO SA has developed FOG-LIGHTS, a set of quantitative macro-economic forecasting models that deliver clear and reliable signals to provide a clearer vision amidst the fog generated by the financial information overflow.

Fog-lights provides monthly forecasting tools on key macro-economic and financial variables, such as interest rates, currencies, stock markets. Fed by public data, fog-lights gives unambiguous directional indicators in the form of buy or sell signals with a time horizon of between four and six months.

 

Latest Summary

After the last update of the models, the main conclusions that can be drawn are the following:

US business cycle is clearly slowing down. We now expect US economic growth to be, at best, slightly positive in the 1st half of this year. Our US monetary policy indicator points already to an extra-loose stance, which may bring some welcomed support in the 2nd half of the year. 
Worldwide moderation of the industrial activity pointing to a soft-landing or rather a mid-cycle slowdown for the world economy.The slowdown seems so far to be less severe in other geographical area over the next few months as there is a lag of about 2 quarter in the transmission of a US-led slowdown to the rest of the world (4-12 quarters lag for recovery).
The upward pressures on US headline and core inflation haven't eased much in spite of the downward trend in the business cycle. As a result, some inflation risks remain. 
As a result to our forecasts on both economic growth and inflation, downward pressures on US interest rates are limited. Given the impressive rallye of US Treasuries over the last few months, helped somewhat by the equity market plunge and Fed aggressive easing, interest rates shouldn't fall much more. Note that in local currency terms, bonds denominated in EUR should outperform USD bonds. Concerning corporate bonds, we recommend keeping a cautious stance even if credit spread probably spiked on overdone fears. Indeed, they always under-perform government bonds in economic cycle downtrend. 
Our Fed's fund rate model didn't forecast such an aggressive easing mainly because inflation risks have remained elevated. Consequently, we believe that after slashing rates (we now expect Fed's fund rate at 2% or below this summer), the first step to a rates normalisation may come sooner than expected by the market (before year-end).
Equity relative valuation is cheap both in both Europe and in the US. Defensive sectors will continue to outperform.