Look for:

Research Detail

2022/06/29 / Erste Group Research

Global Strategy 3Q 2022


Ongoing geopolitical tensions and supply-side shortages are leading to high inflation rates and a weaker economic outlook. In this tension field, central banks are tightening monetary policy. Weaker economic data could cause interest rate expectations to fall by the end of the year, and we expect government bond yields in the medium and longer maturities to decline. On the stock market, we expect a volatile sideways movement in view of the pronounced uncertainty.

Economy: High inflation is leading to real wage losses and rising interest rates are further dampening purchasing power. Consumer sentiment has plummeted in both the US and the euro zone, and private consumption is suffering. Companies are also less inclined to invest in this environment, which is characterized by continuing uncertainty. In addition, supply chain problems are again intensifying in Europe, dampening industrial production. While we expect very weak growth in the US economy, Europe could experience temporary growth support this year due to the regained freedom to travel and could also benefit from money from the EU recovery fund. Serious downside risks to the economy would come from significant cuts or a halt in Russian natural gas supplies. Inflation has recently remained at high levels, with broader price rises increasingly taking hold alongside energy and food prices. We expect a certain easing by the fall, but inflation should come down only slowly.

Bonds: The Fed signalled its intention to implement faster rate hikes when it tightened monetary policy in June. However, the bond markets reacted only cautiously to this, with yields on 10-year US Treasuries actually falling. The bond markets first have to digest the tension between high inflation and expected weaker economic data. Inflation rates should fall slightly in Q4 and, in conjunction with a weaker economy, we do not expect any further interest rate hikes in the USA from the end of the year for the time being. Already in the run-up, the yield curve should become inverted. The ECB will raise rates by 25 bps in July and a stronger rate hike of 50 bps could follow in September if medium-term inflation forecasts remain unchanged or worsen. In December, the ECB will focus on 2024 and 2025. Lower inflation forecasts for this period could justify a longer pause in rate hikes. Yields on medium and longer maturities should fall slightly.

Currencies: The uncertain environment allows safe haven currencies to profit for the time being. In the medium term, the relative adjustment of monetary policy will be decisive. This argues for a weaker dollar and an essentially stable Swiss franc. Real negative yields continue to support the gold price.

Equities: We expect the global equity market to trend sideways in 3Q, with high volatility. Weaker leading indicators suggest lower earnings momentum in 2Q, especially compared to the strong prior year. Excluding US energy company earnings, US earnings would fall -1.8% (y/y) in 2Q instead of rising +5.8% (y/y). In Europe, gas supply cuts and supply chain issues could weigh on the industry.

PDF Download Download PDF (804kB)

General information

AuthorErste Group Research
Date2022/06/29
Languageen
Product nameGlobal Strategy
Topic in focusCredits/ Corporate bonds, FX, Macro/ Fixed income
Economy in focusAustria, Croatia, Czech Republic, Eurozone, Germany, Hungary, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Switzerland, Turkey, United States
Currency in focusCroatian Kuna, Czech Koruna, Euro, Hungarian Forint, Polish Zloty, Romanian Leu, Serbian dinar, Swiss Franc, Turkish Lira, US Dollar
Sector in focus-
Download



Decline
Accept

We use cookies and web analysis software to give you the best possible experience on our website. If you consent, these tools will be used. For more details please read our Data protection policy.

INFORMATION FOR CORPORATE AND INSTITUTIONAL CLIENTS

Any information, material and services regarding financial instruments and securities provided by Erste Group Bank AG or any of its affiliates (collectively “Erste Group“) on this and any linked website hereafter (jointly the “Websites”) shall be exclusively to investors who are not subject to any legal sale or purchase restrictions (the “Interested Party“).

The publication and distribution of information as well as offering and selling of products and services described on the Websites is prohibited by law in some jurisdictions. For this reason, persons in countries in which the publication as well as the offering and selling of products and services described on the Websites are not permitted by law, must not enter the Websites and/or acquire the products displayed on the Websites.

Neither Erste Group nor any third party shall offer access to the Websites or offer the products to especially, but not limited to citizen/residents of the United States and “U.S. person” (as defined in Regulation S under the US Securities Act 1933 as amended). For this reason, the distribution or redistribution of the information, materials and products into United States or into any other jurisdiction where it is not permitted under the applicable law, as well as to the citizens/residents of these countries shall be prohibited. The securities displayed on the Websites have not been and will not be registered under the US Securities Act of 1933 and trading in the securities has not been approved for purposes of the US Commodities Exchange Act of 1936. For this reason the securities may, inter alia, not be offered, sold or delivered within the United States or, for the account and benefit of U.S. persons.

The Interested Party is solely responsible to examine, whether he may enter the Websites under the law applicable to it. Erste Group shall not be responsible for the distribution of content of any of the Websites to individuals or entities which provide false information about their right to enter the Websites. For this reason Erste Group shall not be liable for any legal claims or damages which may result from the unauthorized entering or reading of the Websites.

By agreeing to this hereto, the Interested Party confirms that
(i) It has read, understood and accepted this Information and the Disclaimer;
(ii) It informed itself about any possible legal restriction and warrants that it is not restricted or prohibited to enter the Websites according to any law applicable; and
(iii) It does not make available the contents of the Websites to any person who is not qualified by law to enter the Websites.
(iV) It is no consumer.