Investors know, of course, that Blue Monday at the bourses was in early October 2022, when markets dropped to their yearly lows and sentiment reached or even undershot lows unseen since 2008. Ever since, stocks and bonds have recovered – likely more than sentiment has. Recent surveys still show gloom, and the consensus is for new price lows in the first half of 2023.

What does this mean for investors?

First of all, the consumer in Western industrialised countries is very resilient and China’s reopening and the stimuli around it have spurred some big catch-up for emerging markets. On top of this, inflation rates are finally receding – not always to the extent investors wish for, but at least the direction is now the right one: down instead of up. And finally, central banks are curbing their appetite for further rate hikes as the fog clears.

That said the irony may be that the last one printing – the Bank of Japan – may hint at an end to everlasting monetary expansion this week. If they do so, this may have some repercussions on the global carry trade that has been in place for decades. However, apart from some higher bond yields in Europe (the preferred destination not only of Japanese tourists but investors as well) the impact should be limited – if the monetary turnaround comes at all.

In the meantime, we still think it is too early to flick the switch all the way in favour of cyclicals, though some cherry-picking is too tempting to be ignored. We highlight the automotive supply industry, in which some companies boast strong demand that is reflected in very solid booking, relief on the price of raw materials, and undemanding valuations.

And what about the eurozone economy? 

Eurozone industrial activity and Germany’s gross domestic product (GDP) number surprised on the upside last week. This translates into a rising likelihood that a recession caused by the energy price shock can be avoided in the eurozone. In November, the eurozone industrial production increased more than expected after having been revised slightly up for October. Even production in energy-intensive sectors increased after a four-month stretch of sizeable declines.

Further declines in energy prices since November have the potential to support economic activity at the start of 2023. The German 2022 GDP growth of 1.9% implies stagnating growth in Q4 2022 in contrast to the expected contraction. Both data points highlight the resilience of the eurozone economy and, in our view, increases the conviction that the eurozone will be able to avoid a recession in the first half of 2023.

This resilience of the economy allows the European Central Bank (ECB) to do more to fight still high inflation. We now expect the ECB to hike rates by 50 basis points at its next meeting and 25 basis points in the following meeting addressing the increasingly broad-based inflation pressure.

Money markets expect even more aggressive rate hikes while the consensus seems to share our view that the ECB main refinancing rate will increase up to 3.25% in the first half of the year. The Swiss National Bank (SNB), in contrast, is less under pressure to hike rates further. Inflation has declined in the last four months in Switzerland and was reported in the second half of 2022 at an annualised rate of just 1.6%. We continue to expect the SNB to hike its policy rate by just 25 basis points at its next meeting in March 2023.