Horizon Handout October 2022

Economics

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

Equities

• Negative earnings revisions are likely to continue during the Q3 reporting season, in line with the economic slowdown.
• Higher risks in Europe are accompanied by lower valuations. Europe offers catch-up potential.
• Low investor positioning should limit downside potential. Year-end rally seems possible.

Bonds

• Rise in yields on safe government bonds continued unabated. Flattening of the US yield curve.
• Risk premiums for emerging market bonds increased slightly. High-yield bonds in particular with widening spreads.
• We underweight bonds and remain cautiously positioned on credit risk. Duration: less short than before.

Commodities

• Oil affected by weak global demand, but supply is still tight. A stronger price drop is unlikely.
• Gold hit by strong dollar and higher real interest rates. Monetary policy turnaround necessary for sustained upward trend.
• Industrial metals burdened in the short term by demand risks and dollar strength. Supercycle remains intact.

Currencies

• Despite the interest rate hikes, the euro remains weak. Other central banks were faster and seem more determined.
• In addition to monetary policy, the uncertainty ahead of winter is a particular burden: How badly will the economy be hit?
• Against the US dollar and the Swiss franc, the euro falls well below parity.