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Key take-aways

  • We have updated our calls into year end: inflation will likely be a tad stronger and growth a tad softer but should catch up in 2022. We expect the first US rate hike in Sept. 2022
  • We have revised our USD forecast to Neutral in the medium term, broadened our call from China to pan-Asian fixed income, and reiterate our barbell strategy in equities.

‘Tuning into the mid-cycle slowdown’ was our label back then. By now, policymakers and global investors have a better grip on how the world economy is coming out of the pandemic. That said, the pandemic seems to be far from over, as infection rates are still going through the roof in many places. Yet the economic fallout should continue to diminish, as vaccines are rolled out further globally and we have seen major breakthroughs in Covid-19 treatments in the past ten days. Thus, uncertainties in this regard have abated versus late-summer 2021.

So what did we change in our forecasts?

  1. First, we tweaked our macroeconomic figures: we acknowledge that price pressures from supply disruptions will likely be stronger and last longer but expect most of the foregone growth to be offset in 2022.
  2. Also, given recent decisions by the US Congress, the fiscal cliff there now seems to be less of a risk.

Taken together, this makes us more confident that the first rate hike will be in September 2022. Yet this is by no means an ‘auto-pilot’ decision; it depends on the performance of the US economy in the first half of 2022. Given the change to the US outlook and some ongoing uncertainties everywhere else, we have upgraded the USD outlook to Neutral in the medium term. The terms of trade have turned strongly in favour of the US given its strong domestic focus – particularly compared to Europe.

Barbell strategy
In the main asset classes, we made only minor adjustments. In fixed income, we confirmed our preference for flexible strategies with a tilt to shorter durations. In regional terms, we extended our call from China issuers to Pan-Asian ones. In equities, ‘whatever could go right, went right’, but investors may want to consider that good years tend to end well (see number of the week). We maintain our barbell strategy in financials vs healthcare and reiterate our preference for resilient companies.

Number of the week

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