Coffee Break 1/24/2022


  • The Chinese economy grew by 1.6% during the last quarter, the fastest quarterly growth since Q4 2020. A rebound in activity ahead of new lockdowns linked to Omicron helped.
  • In the US, the announcements linked to the earnings season continued to be driven by the pandemic: Netflix and Peloton reported softer demand and US financial institutions noted labour cost increases.
  • The Bank of Japan kept interest rate targets unchanged, noting that inflation was still far below its 2% target. The bank confirmed being in no rush to change its ultra-loose monetary policy.
  • Diplomatic activity between Western countries and Russia over the standoff over Ukraine made little progress but resulted in a willingness to maintain talks.



  • The US Federal Reserve Bank will hold its FOMC meeting. As financial markets are reacting anxiously to the upcoming interest rate lift-off and balance sheet run-off, communication will be key.
  • January estimates of global Markit PMI will be released, assessing the impact of the Omicron variant on activity. Mobility was hindered in the holiday season and supply chain bottlenecks persisted.
  • Italy will hold its Presidential election as the term of Sergio Mattarella comes to an end early-February. Mario Draghi, currently the country’s prime minister, could be chosen.
  • The earnings season gathers speed with the releases of bellwether names, including IBM, General Electric, Apple, Tesla, Caterpillar and Microsoft.


  • Core scenario
    • The latest messages sent by the Fed (interest rate lift off and balance sheet run off) will condition performance in 2022. Medium term, liquidity reduction is a turning point.
    • After the rapidly rising interest rates and equity rotation out of Defensives and Growth segments and into Cyclicals/Value over the past month, we will likely enter a digestion phase.
    • Elevated inflation and strong growth, while expected to fade in 2022, should drive interest rates and bond yields higher. A gradual rate rise should support risky assets.
  • Risks
    • Several uncertainties related to the pandemic, the healing of COVID-19-related disruptions, central bank communication and geopolitical tension will likely lead to market volatility.
    • A brutal, faster-than-anticipated rate tightening in the US - if inflationary pressures increase and/or persist - could jeopardize the recovery.
    • The omicron infections underline the risk of a stop-and-go in economic restrictions.
    • Also, supply side constraints are numerous and will last longer than expected and extreme supply tension could impact economic and corporate earnings growth.
    • Finally, geopolitical tension in Eastern Europe could push energy prices further and weigh on investor sentiment.


Strong economic performance should continue into 2022, with growth of around 4% both in the United States and in the euro zone and close to 5% in China. We expect supply and demand will gradually rebalance in an above-potential growth context in major developed economies. As strong demand faces pandemic-related supply bottlenecks, tensions arise and are leading to higher prices. Hence, inflation should remain uncomfortably elevated, at least during the winter months. We expect the beginning of a Fed rate hike cycle to be a very delicate time, during which we prefer keeping a short duration. For equity markets, the context of a potential yield curve steepening combined with above-potential growth leads us to begin 2022 with a constructive stance on equities, mainly via the euro zone, Emerging markets and Financials names.



The shifts in economic and inflationary regimes will call for a dynamic equity allocation. We expect inflation to peak in Q1 2022 as bottlenecks start to ease. We will focus on value and risky assets until growth shows resilience and inflation decelerates. We are currently overweight equities.

  1. We have exposure to assets related to the post-COVID rebound/recovery
    Overweight equities, underweight bonds. Within equities, preference for European and Emerging Markets through China-A onshore stocks, then Japanese and US equities.
    Underweight government bonds, keeping a short duration. We focus on the source of the highest carry, i.e. emerging debt. We stay neutral European investment grade credit, we downgrade US investment grade. We have a currency exposure to the NOK.
  2. Positive stance on financials, materials and energy – assuming that Q1 2022 sees inflation peaking and bottlenecks easing.
  3. In our core long-term thematics: tech & innovation, healthcare and climate, as they reveal high growth potential over the medium term.