The UBS investor sentiment in Switzerland improved in June, rising to -2.1 from -22.0. This is the best reading since February. Even with ongoing issues from the Iran-Israel conflict, expectations for growth and inflation have remained steady. Uncertainties around geopolitics and trade policy still exist. The rise from -22.0 to -2.1 suggests that investors in Switzerland are feeling more optimistic, although the sentiment is not yet fully positive. This recovery is stronger than April’s negative outlook and shows that expectations are starting to look better. It indicates a shift in how investors perceive risk, even though overall economic indicators on inflation and growth haven’t changed much. Digging deeper, this improvement means that while investors remain cautious—especially regarding geopolitical tensions and potential trade issues—they are less reactive. The Iran-Israel conflict is still a concern but hasn’t altered long-term growth or inflation predictions. Stability in these expectations encourages investors to adopt less reactive strategies for short-term investments. For those invested in derivatives, this change in sentiment is important for understanding future volatility over the next few weeks. We notice fewer sharp changes in expectations, which can reduce the price fluctuations options traders typically seek. While opportunities still exist, timing and strategy need to adapt more to upcoming data releases and less to sudden geopolitical news. With steady inflation forecasts, implied volatility—particularly in sensitive sectors—may remain stable unless actual data diverges from current expectations. Schlatter’s perspective, reflected in the smoother figures, suggests that major central bank changes are unlikely in the near future. This could narrow calendar spreads and compress premiums on short-term contracts. For us, costs for hedging in index-linked derivatives may ease slightly, though not evenly across sectors due to ongoing political uncertainty that could cause brief spikes. It’s also important to monitor dispersion. While overall sentiment is less negative, different asset groups are reacting differently. Instruments related to trade policy or manufacturing might still show fluctuations. This situation could make relative value strategies more appealing than simply betting on market direction. It’s a good time to reassess risk exposure, especially regarding unpredictable foreign policy areas. Lower headline indicators don’t eliminate the risk of sudden shifts. In summary, while we see improvements, the stability in core expectations may limit how much implied risk premiums can decline. This suggests a cautious approach rather than a drastic change in positioning in the near future. Any adjustments should align with how sentiment translates into actual volatility, rather than making broad adjustments based on macro trends.

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