(Style) volatility shapes the start of the year

Economics

• Euro economy takes winter break as omicron and energy costs burden; US economy robust.
• Global economy positive in 2022: consumers and companies with pent-up demand. Fewer supply bottlenecks.
• Inflation declines in 2022 but remains an issue; central banks tightening policy – the Fed and BoE fast, ECB slow

Equities

• The start of the year was characterised by interest rate fears and strong style rotation. Europe held up better than the US.
• More restrictive central banks in 2022 pose a risk to high valuations such as growth stocks.
• We remain cautiously optimistic with a moderate equity overweight, even though the market is likely to remain volatile.

Bonds

• Bond sell-off in response to tighter Fed statements. Yield rise driven by real interest rate rise.
• Emerging market bonds caught between economic recovery and rising US interest rates. Spreads have risen.
• We underweight bonds and remain cautiously positioned on credit risk. Duration: short.

Commodities

• Gold continues to fluctuate around the USD 1,800 per ounce mark. Rising real interest rates limit upside opportunities.
• Rapid recovery in crude oil from Omicron and economic worries. A collapse in demand remains a real risk.
• Industrial metals await positive economic signals. Rising energy costs lead to higher production costs.

Currencies

• Monetary policy divergence seems to be priced in. The ECB's hesitant stance has not weighed further on the euro exchange rate.
• The pound surprises with a small surge around the turn of the year. The tighter monetary policy is having an effect.
• The euro is able to regain ground after being under heavy pressure against the Swiss franc in Q4.