Coffee Break 3/28/2022


  • Markets have adjusted expectations for the Fed Funds level at year-end to 2.25%, from currently 0.375%. Chairman Jerome Powell said that the Fed will use the necessary tools to restore price stability as “inflation is much too high”.
  • From the French INSEE to the Belgian BNB via the German ifo and the US Michigan Consumer Sentiment, Business and Consumer confidence surveys reveal sharply deteriorating expectations while current situations are still holding up.
  • Lockdowns in mainland China to mitigate the COVID-19 outbreak are impacting consumption and mobility, making this year’s 5.5% GDP growth target look ambitious.
  • One month after the Russian invasion of Ukraine, the EU agreed to buy substantially more Liquid Natural Gas from the US while NATO agreed to reinforce its presence in Eastern Europe.



  • Euro zone flash estimates for March consumer prices are expected to accelerate towards 7% YoY as the first economic consequences of the war in Ukraine will become visible in hard data.
  • The March US job report will be released and likely confirm the Federal Reserve’s assessment of a very strong and extremely tight labour market.
  • As the price of oil (Brent) rose again to USD120/bbl, the OPEC+ meeting, focusing on supply targets, will be closely watched for signs of a potential relief in the oil market.
  • On the geopolitical front, an EU-China summit will show the union against climate change but also divisions over sanctions on Russia.


  • 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 time is of the essence: numbers’ range is decreasing as the conflict is lasting.
    • The Fed started a new hiking cycle in March and plans to accelerate tightening this year and continue next year. 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 visible 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, 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 in the euro zone and 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 and support from rising commodity prices and more accommodation on China
  3. The current inflation backdrop explains why our allocation to fixed income continues to focus on:
    • a short duration,
    • a 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.