Horizon Handout November 2022

Economics

• Inflationary pressures remain high and Europe is mired in the energy crisis. Consumers are unsettled ahead of winter.
• The risks and stress factors are leading into recession, even if labour markets are still robust.
• Central banks must continue to tighten monetary policy, even if the economy is slowing down.

Equities

• Negative earnings revisions continued during the Q3 reporting season, in line with the economic slowdown.
• Higher risks in Europe are accompanied by lower valuation metrics. Europe offers catch-up potential.
• Low investor positioning should limit downside potential. Further bear market rally seems possible in the short term.

Bonds

• Safe government bond yields rise to new highs for the year. US yield curve remains inverted.
• Rise in risk premiums for corporate bonds continues. Emerging market bonds with spread widening.
• We are underweight bonds and remain cautiously positioned on credit risk. Duration: less short than before.

Alternative investments / commodities

• OPEC+ cuts production, US releases more reserves. Supply remains tight in the medium term and oil price thus well supported.
• Gold burdened by high real rates. Fed pivot necessary for upward trend. Diversification effect currently limited.
• Industrial metals burdened by demand risks in the short term, but supply also weakens. Supercycle remains intact.

Currencies

• Euro remains under pressure. Uncertainty about the economic consequences of the energy crisis is weighing on it.
• ECB is now on a tightening course. In addition to rate hikes, balance sheet reduction is gradually coming into focus.
• Despite the ECB's tightening course, the euro remains below parity against the US dollar and the Swiss franc.