Cross Asset Investment Strategy - January 2022

The resurgence of the virus cycle, central banks’ reactions to high inflation figures, and Evergrande’s unavoidable default have led to some volatility in the market, but these issues have not caused any major disruption. In the battle between growth and inflation narratives, the mantra that bad news is good news for markets continues to prevail...

A number of scheduled country-level elections will carry moderate uncertainty. However, while they could bring new faces, they are unlikely to result in abrupt changes from the current generally pro-European and market-friendly stance of large EU countries’ governments...

The three major central banks issued restrictive signals last week. The banks have succeeded in changing the course of their monetary policies without harming the markets...

2021 Covid surging in 1H and inflation swelling in 2H have contributed to the political pendulum swinging hard left in LatAm. More structurally, the commodity super cycle unwind mid last decade and the political discontent likely set the entire shift in motion. Against the general trend, some elections cycles moved in the other direction as well...

We are making no change to the narrative and the probabilities of the scenarios. The central scenario assumes that Covid will become endemic with multiple, albeit manageable waves, that fiscal levers will remain significant and tied to monetary policy, and that growth will come back to potential in 2023. We assume the Omicron variant will temporarily impact the recovery in Europe...

Macroeconomic Picture by area and Macro and Market forecast.