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Cross Asset Investment Strategy - November 2022


4 November, 2022

> 10 minutes
Cross Asset Investment Strategy - November 2022

4 November, 2022

> 10 minutes

Global Investment Views

Fed pivot is not around the corner

Tightening monetary policy and slowing economic growth lead us to keep a cautious stance on risk assets, in light of potential liquidity and refinancing issues, particularly in low quality credit. We prefer US IG (over HY) segments and selectively like EM hard currency debt. Core yields on USTs are at attractive levels, allowing us to be neutral but agile on duration. In equities, we continue to play the resilience of US over Europe, but are watchful of the impact of a strong dollar on foreign earnings of US companies. Overall, investors should maintain a diversified stance along with a tilt towards quality assets.

This Month's Topic

Where is China heading to?

China’s cyclical recovery outlook hinges critically on developments in Covid-19 policy. Housing will become less of a drag as the sector manages an L-shaped landing. In the long run, China faces multiple structural headwinds. It will be difficult for it to maintain the miraculously high growth it experienced in the past.


For the Fed, the Impossible QT

The Fed has started shrinking its balance sheet as part of its fight against elevated inflation. However, QT is being challenged by the Fed’s new role as a counterparty of money-market funds. The process would be greatly improved if the Treasury were to announce a debt buyback financed by the issue of T-bills.

False sense of security from easing energy prices

Natural gas prices have plunged since their summer peak, supported by ample stocks and by the EU emergency measures. While near-term stress has eased, longer-term supply/demand tightness remains, calling for higher risk premiums. As Russia loses its leverage, demand elasticity and weather might be the new pivotal gas drivers.

Market scenarios & risks

November 2022

We maintain the probabilities of our scenarios unchanged. Some of the risk factors we identify may occur in our central scenario, which is probably not yet fully priced-in by markets. Risks remain skewed to the downside in the short term, but it would take a combination of several risk factors to trigger the downside scenario at the 12-18 month horizon. At this horizon, we believe that the downside is counterbalanced by an upside scenario, that of a rapid decline in inflation due to an easing of  as prices, a ceasefire in Ukraine, and/or to the combined tightening of global monetary policies, the impact of which can be underestimated.

Macroeconomic picture

November 2022

Macroeconomic Picture by area and Macro and Market forecast.

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