Macroeconomic Context and Investment Philosophy
The month of July brings with it a shifting global macro backdrop, characterised by geopolitical complexity, divergent monetary policies, and sectoral realignments. As an investment banking advisory rooted in Switzerland with active exposure to the US market, Neumarz approaches this phase not with trepidation, but with focused anticipation. We maintain our position as both a cautious observer and a pragmatic allocator of capital, identifying strategic footholds in a fragmented global landscape.
Geopolitical Volatility and Oil Markets
Fragile Stability in the Middle East
The latest flare-up in the Middle East — a fragile ceasefire following direct strikes by the United States on Iranian nuclear facilities — has driven significant, albeit temporary, volatility in oil prices. Brent crude rallied above $79 before stabilising closer to $68 as fears of an extended disruption receded. Notably, this price action occurred with minimal physical disruption to flows, particularly through the Strait of Hormuz. CBOE volatility for oil surged well above historical medians, yet the longer-term price expectations remain anchored in oversupply.
Pricing Outlook and Strategy
Our view remains aligned with leading market desks such as BNP Paribas and UBS Global Markets: oil prices are likely to trend toward the $60–65 range by year-end, barring systemic supply shocks. For Swiss-based institutions or dollar-exposed portfolios, this creates room to deploy structured strategies — reverse convertibles and capped bonus notes — pegged to oil volatility, allowing income capture while shielding principal.
Fixed Income: Yield, Risk and Currency Hedge
US Treasury Dynamics
In the fixed income domain, the US Treasury market continues to reflect a delicate equilibrium. On one hand, the Treasury is under pressure from rising fiscal imbalances — debt-to-GDP having doubled in fifteen years — yet on the other, domestic demand for short- to mid-duration debt is being artificially supported by deregulatory moves. The Supplementary Leverage Ratio (SLR) changes announced in Q2 have allowed US banks to add Treasuries to their balance sheets without breaching capital requirements. The 10-year note currently yields 4.23%, and futures imply a dovish tilt post-Powell’s term in 2026.
Swiss Opportunity Set
Swiss family offices and pensions are notably well-positioned here. With the Swiss 10Y yield near 2.6%, allocating to 5Y Treasuries presents a 150–180 basis point yield pickup even on a currency-hedged basis. Our fixed income strategy, therefore, emphasises sovereign and investment-grade credit within the 5–7 year window, adding duration selectively on drawdowns.
Currency Landscape: Capital Flows and Hedging
From a currency perspective, the EUR/USD exchange rate — up nearly 14% YTD — exemplifies the dollar’s persistent weakness, driven by capital flows returning to Europe and Asia. While the dollar remains structurally vital, especially in energy transactions, its short-to-medium-term trajectory is weighed down by deficit concerns and geopolitical exposure. Notably, the Swiss franc has maintained stability, with the EUR/CHF virtually unchanged (-0.47% YTD), affirming its role as a regional haven.
Strategic Overlay Recommendations
In this environment, FX overlays become not a tactical trade, but a portfolio necessity. For cross-border investors, we recommend adopting multi-leg FX strategies that short the USD while overexposing to EUR and CHF. Additionally, maintaining a gold allocation (target 5–7%) provides both inflation protection and currency hedging benefits, particularly in light of gold’s nearly 26% YTD appreciation.
Equities: Selective Conviction in Europe
Valuation Divergence Between the US and Europe
Equities offer more nuanced opportunities. The US equity market, led by the S&P 500 and Nasdaq, continues to trade at elevated multiples — price-to-earnings ratios near 22x for large caps, raising concerns about valuation sustainability, especially if earnings growth disappoints in H2. In contrast, European mid-caps (particularly the German MDAX) present a compelling relative value proposition. Benefiting from reduced trade uncertainty and substantial fiscal injections, including Germany’s plan to increase defence spending to EUR 162 billion by 2029, Eurozone equities are set to outperform on a risk-adjusted basis.
Tactical Allocation
EPS forecasts for the MDAX constituents suggest 20% growth into 2026, backed by domestic investment and recovering export demand. While risks remain — chiefly political fragmentation and energy exposure — the case for reweighting toward European SMIDs is grounded in valuation, earnings visibility, and policy support. Swiss asset managers and institutional mandates should consider reallocating marginal equity exposure to these segments, balancing them with the defensive characteristics of Swiss majors in healthcare and consumer staples.
Real Assets: Residential Resilience
Repricing and Recovery
The real estate segment, often dismissed amid rising rate cycles, is seeing a resurgence — at least in the European residential sector. ECB rate cuts, coupled with loosening in Sweden and anticipated adjustments in the SNB’s positioning, are translating into renewed mortgage activity. Urban markets such as Zurich, Munich, and Barcelona are rebounding both in price and rental growth, with yield expectations in the 7–8% range over five years.
Institutional Rotation
Institutional investors have begun to rotate back into this space, particularly via REITs and pan-European funds. Residential assets, offering lower volatility and higher occupancy stability than office or retail, are increasingly preferred. This aligns with our strategic tilt: neutral-to-positive on residential real estate with moderate leverage, focused on core urban markets with dynamic demographics.
Commodities and Thematic Allocations
Fossil Fuels vs Transition Metals
Commodities, as a category, reflect bifurcation. Traditional hydrocarbons remain under pressure, with Brent and WTI down over 7% YTD. Meanwhile, energy transition metals — lithium, nickel, copper — continue to draw capital inflows. From our vantage point, the underweight position in oil is justified, barring a macro shock. Instead, the long-term strategic allocation should emphasise metals aligned with decarbonization themes, using Swiss commodity trackers or US-listed thematic ETFs.
Gold as a Strategic Anchor
Gold, already up over 25% YTD, retains its strategic allure. Central bank purchases, especially from Asia, alongside inflation uncertainty and geopolitical hedging needs, continue to underpin demand. In balanced portfolios, we maintain a strategic allocation of 5–7%.
Strategic Allocation Framework
Equities:
- Overweight European SMID caps, particularly in the industrial and tech-adjacent segments
- Neutral US equities; monitor for earnings surprises and monetary inflexion
- Underweight emerging markets, except for selective exposure to India
Fixed Income:
- Preference for US and Eurozone investment-grade bonds (5–7Y maturity)
- Swiss sovereigns as a defensive anchor
Currencies & Commodities:
- Constructive on EUR and CHF versus USD
- Maintain strategic gold exposure
- Underweight oil, overweight transition-linked metals
Alternatives:
- Support residential real estate strategies via funds or direct mandates
- Explore private credit structures (e.g., ISO-based lending in the US market) as yield-enhancing assets
Final Note
In conclusion, while volatility has returned to centre stage, it also reopens opportunity windows. Our cross-border vantage allows us to filter macro noise and respond with conviction. By balancing thematic exposures with tactical hedges, Neumarz remains confident in delivering risk-adjusted alpha in the second half of 2025. We remain available for scenario modelling, client-specific stress testing, and real-time allocation refinements.
