Global Strategy 1Q 2023
High inflation and increased interest rates should lead to only weak GDP growth. Central banks have not yet completed the cycle of interest rate hikes and geopolitical uncertainty could lead to increased volatility in financial markets for some time. We consider medium and longer maturities of US government bonds in dollars to be attractively valued. In the equity market, we recommend quality stocks with high dividend yields and defensive sectors. In corporate bonds, we prefer the BB segment.
Economy: Despite high inflation and rising interest rates, private consumption in the US is still robust, which is likely due to the strong labour market. Investment spending and the real estate market, on the other hand, are suffering. We expect only weak GDP growth in the US this year. Easing pressure from energy prices, housing costs and food prices should bring the inflation rate down in the course of the year. The countries of the Eurozone are showing divergent developments. While Italy and Spain are benefiting from the recovery in tourism, Germany is feeling the cooling of the global economy. With an improvement in the global growth environment, investment momentum should be able to pick up from the 2nd half of the year. An important factor for the decline in inflation - and thus the recovery of private consumption - will be the development of energy prices. However, a drop in gas and electricity prices will only reach households and companies with a time lag.
Bonds: The interest rate hikes in the US are not yet complete, but the FOMC has already slowed down the momentum of the rate steps. We expect two more rate hikes in February and March, but this will depend on the development of inflation and the labour market. The US yield curve remains inverted as the market assumes that the current level of key interest rates will not persist. Declining inflation rates could fuel speculation of rate cuts later in the year, leading to falling yields across all maturities. The ECB has recently held out the prospect of further significant rate hikes. In March, lower energy prices should dampen the ECB's inflation forecasts, but the inflation target is not expected to be reached until 2025. A sufficiently restrictive interest rate level could be reached in May and yields on longer maturities could fall.
Currencies: Despite ongoing geopolitical uncertainties, the outlook for the economy and inflation should ease. Therefore, safe haven currencies should gradually lose their attractiveness. We expect a slight weakening of the Swiss franc against the euro. The latter should strengthen slightly against the US dollar as interest rate differentials narrow. The gold price is supported by negative real yields.
Shares: The global dividend yield in 2023 is below the level of increased US government bond yields, which currently limits the relative attractiveness of equities. We expect only a moderate increase in the global equity market in 1Q and prefer defensive sectors and quality stocks with high dividend yields.