Sustainable recovery only with Fed pivot

Economics

• US: Fed hits the brakes hard on monetary policy. Mild US recession in 2023.
• High prices for natural gas hit Europe hard. Recession until spring 2023, followed by a V-shaped upswing.
• Inflation peak in the US passed. Euro inflation continues to rise until end of 2022. Price pressures ease from spring 2023.

Equities

• The still unfulfilled hope of a Fed pivot and the end of the zero-COVID policy in China provided a tailwind.
• Value stocks gained significantly thanks to China hopes and small caps outperformed large caps.
• We have reduced our equity allocation to near neutral with the market recovery, as risks are not off the table.

Bonds

• Unabated high inflation keeps central banks on track. Hopes of a Fed pivot appear premature.
• We consider corporate and emerging market bonds attractive - especially versus government bonds.
• As bond attractiveness increases, we remain moderately underweight with a duration close to neutral.

Commodities

• Gold is bottoming out. The Fed pivot is still needed for a sustained recovery. Relative attractiveness has declined.
• Oil demand from China is likely to further tighten the oil market if zero-COVID is abandoned. G7 price cap ineffective.
• Industrial metals also benefit from positive news from China. Long-term trends remain intact.

Currencies

• EUR/USD continues to hover around parity. A new trend depends on how Europe's economy gets through the winter.
• After the political turmoil, the pound exchange rate is looking for direction and fluctuates around the 0.87 pound per euro mark.
• The franc remains strong. Nevertheless, the euro was able to recover somewhat from its low of 0.95 francs per euro.