Horizon Handout July 2022

Economics

• Inflationary pressures remain high and an energy crisis looms, at least in Germany. Consumers are worried.
• Uncertainty is spreading to the corporate sector. Despite good fundamentals, recession now looms.
• Fighting inflation: central banks must tighten monetary policy even if the economy is slowing down.

Equities

• Optimistic earnings expectations are likely to be reduced in line with worsening economic data.
• Valuation ratios have fallen across the board. Beneath the surface, there are already favourable equity market segments.
• Volatility is likely to increase further in Q3. We are betting on a barbell strategy of quality growth and commodity-heavy equities.

Bonds

• Yields on safe government bonds were recently under pressure from increasing recession fears. Flattening of the yield curve.
• Risk premiums for corporate bonds continue their upward trend. EM high-yield bonds increasingly attractive.
• We are underweight bonds and remain cautiously positioned on credit risk. Short duration.

Commodities

• Oil swings between recession worries, China lockdowns and the EU oil embargo. Supply remains tight and prices high.
• Gold dominated by restrictive central banks. Potential is limited despite high inflation and risk of recession.
• Base metals are temporarily weaker due to China’s lockdowns. Long-term upward trend is fully intact.

Currencies

• Hesitant ECB: Despite the announced interest rate turnaround, the euro remains weak. Other central banks are simply faster.
• The exchange rate had again fallen to below 1.04 US dollars per euro. A more substantial recovery is difficult.
• The biggest surprise was the SNB's interest rate hike. The Swiss franc thus strengthened once again.