Limited upside potential in 2023

At a glance

Economics

• US: Fed hits the brakes hard on monetary policy. Mild recession likely in 2023, soft landing possible.
• High energy prices hit Europe hard. Recession until spring 2023, V-shaped recovery thereafter.
• Inflation peak in the US passed; euro inflation about to peak. Price pressure decreases from spring 2023.

Equities

• Equity recovery in November. European equities supported by Q3 reporting, short covering and cheap valuation.
• Major setbacks also likely in 2023. Limited upside potential in equities. Asia and Europe with opportunities.
• We are neutral on equities. Economic risks remain. Recovery potential with interest rate turnaround and direction in 2024.

Bonds

• Recovery rally amid increasing recession fears and decreasing inflationary pressure. 10Y yield level noticeably lower.
• Corporate bonds increasingly attractive with solid balance sheet data and capital inflows. Emerging market bonds ahead.
• We prefer corporate and emerging market bonds to safe government bonds. Duration: close to neutral.

Commodities

• Gold recently boosted by USD weakness and real interest rate decline. Relative attractiveness despite potential at Fed pivot.
• Oil on demand side burdened by China and recession worries. Structural deficit on supply side supports recovery.
• Metals with fast recovery on China easing and economic recovery. Long-term drivers remain intact.

Currencies

• EUR/USD fights its way out of the trough. Improved financial market sentiment pushes euro up to 1.05 US dollars per euro.
• After the political turmoil, the British currency swings back towards 0.85 pounds per euro.
• Swiss National Bank relies on strong franc to fight inflation.