Coffee Break 3/21/2022


  • The US Fed turned more hawkish by starting to raise its funds rate by 25bp and so keeping hope of a soft landing. The BoE engineered a “dovish hike” for the 3rd time in a row, and the BoJ left its balance rate unchanged.
  • On the data front, investors took note of higher inflation, a less optimistic ZEW sentiment for the euro zone, and lower-than-expected US retail sales and housing data.
  • US president Joe Biden and his Chinese counterpart Xi Jinping had a virtual meeting on Russia’s invasion in a “tough” and “intense” exchange.
  • NATO members, close partners, and the Ukrainian Defence Minister, met for an extraordinary meeting on Russia’s invasion.



  • Global flash PMIs for the month of March will shed light on the initial impact of the Russian-Ukrainian war on global activity.
  • Speakers from the Fed, the ECB, the BoE and BoJ will help investors assess their view of the economic outlook amid the heightened volatility and geopolitical uncertainties.
  • Despite its zero-covid strategy, cases are on the rise again in China, mostly impacting unvaccinated elderly, but also the supply chain as important cities are in lockdown.
  • The NATO summit will be joined by US president Joe Biden in person. EU heads of states and governments will also meet.


  • Core scenario
    • The Russian military invasion of Ukraine is leading to significant tensions and altering the market outlook over the medium term. For now, a scenario of above-potential economic growth remains achievable, but numbers’ range is decreasing as the conflict is lasting.
    • The Fed just started a new hiking cycle and plans to continue tightening this year and the next. In our central - and best case - scenario, the Fed succeeds in soft landing the economy. US 10Y rates should continue to rise as well as real rates.
    • In Europe, the ECB announced it will stop buying bonds this summer. The announcement paves the way for an increase in interest rates, possibly later this year.
  • Risks
    • The Russia-Ukraine war is pushing commodity prices in general and prices for oil and gas in particular and continue to weigh on investors’ sentiment.
    • As currently shown in China, the COVID-19 and its variants underline the risk of a stop-and-go in economic restrictions.
    • A supply shock due to the global geopolitical tensions may weigh on activity and corporate earnings growth.
    • By the same token but specifically in the US, if the tensions abate, a brutal, faster-than-anticipated rate tightening - if inflationary pressures increase and/or persist - could jeopardize the recovery.


The war in Ukraine has added uncertainties for investors. The most immediate economic impact is an upward revision in inflation forecasts for this year to 5% and a downward revision in GDP growth forecasts to 3.4% for the euro zone in our central scenario estimates. As a consequence, uncertainties, already on the rise due to the expected monetary policy tightening in the United States, have risen further. The invasion of Ukraine and the subsequent economic sanctions on Russia have caused us to be prudent in our allocations. The longer the conflict lasts, the more vulnerable the world economy becomes through a negative feedback loop. This has led us to position our portfolios in a broadly balanced way. Our Multi Asset strategy must cope with the new uncertainties and remain nimble. We know from the past that armed conflicts do not have a lasting impact on markets, except when they lead to an energy crisis.



  1. Facing a binary outcome, we have positioned our portfolios around the neutral weight with some derivatives exposure on the upside in the euro zone and on the downside in the US. Markets are far from pricing an alternative, recessionary, scenario on equities and credit.
  2. We have an overall neutral positioning on equities with a focus on:
    • defensive sectors and quality stocks among healthcare, materials, energy and climate segments,
    • assets set to benefit from the sizeable EU bond issuance for energy and defence spending.
    We remain overweight Emerging market equities, due to an attractive valuation:
    • via Latin America (support from rising commodity prices)
    • via China (domestic stocks - rebound of credit impulse)
  3. The current inflation backdrop explains why our allocation to fixed income continues to focus on:
    • a short duration,
    • diversification among inflation-linked bonds and source the carry via emerging debt.
  4. In our long-term thematics and trends allocation: The Russian invasion of Ukraine has started to shift governments’ spending priorities in terms of energy independence and defence. Hence, while keeping a wide spectrum of long-term convictions, we will favour Climate Action (linked to the energy shift) and keep Health Care, Innovation, Demographic Evolution and Consumption.
  5. In our currency strategy, we have exposure to CHF, JPY and USD, which play their safe haven role.