Horizon Handout December 2022

Economics

• Inflationary pressures remain high and Europe is stuck in the energy crisis. Consumers are unsettled ahead of winter.
• Early signs of falling inflationary pressures are fuelling hopes that central banks will no longer need to tighten as much.
• The risks and stress factors are leading into recession, even if labour markets are still robust.

Equities

• Year-end rally so far in tact thanks to hopes of a Fed pivot on falling inflation. Risk of a bear market rally.
• Valuations have risen. Earnings growth expectations for 2023 still clearly positive despite gloomy economic outlook.
• The lows should be behind us, even if the way up is not yet clear with central banks remaining restrictive.

Bonds

• Safe government bond yields decline. Strongest inversion of the German yield curve in 30 years.
• Corporate bonds increasingly attractive in the medium term. Emerging market bonds with mixed spread development.
• We underweight bonds due to government bonds but are increasingly overweight in credit risk.

Alternative investments / commodities

• Oil with upside potential on China re-opening, end of US strategic reserve release and only mild recession.
• Gold benefits from weak dollar. Fed pivot needed for uptrend. Relative attractiveness to bonds reduced.
• 16-point plan in China boosts industrial metals. Inventories low, liquidity very thin. Supercycle remains intact.

Currencies

• The euro remains at depressed levels. Uncertainty about the economic consequences of the energy crisis is weighing on it.
• The somewhat higher risk appetite has slightly weakened the US dollar, allowing the euro to rise above parity.
• A sustainable upward trend for the euro is not expected until next year, when the winter is over.