Global strategy 4Q 2021

After the initial recovery phase, the economic growth momentum should now slow down. The high inflation rates are regarded as transitory, but sustained supply bottlenecks could increase the risk of more substantial price increases. The central banks will gradually start to reduce (“taper”) their purchase programs. We continue to prefer equity investments and broadly-based investments in high-yield corporate bonds and investment grade hybrid bonds.

Economic outlook

The quick economic recovery – after the pandemic-induced, drastic economic downturn – is largely due to decisive support measures by the central banks and governments. While we expect the recovery to continue, the growth momentum should now weaken. In many countries, economic output has not reached pre-crisis levels yet; this notwithstanding, inflation rates have increased substantially this year from low levels last year. This is due to special factors, base effects, and a drastic increase in energy prices. Supply chain shortages caused by the reopening of the economy also increase the pressure on prices. Although we expect these effects to be of a temporary nature, sustained supply bottlenecks would fuel the risk of more substantial price increases. The weakness on the labour market should have a dampening effect on inflation in the medium term.

Bonds

At the moment, the ECB is still far from reaching its medium-term inflation target, which is why the central bank will maintain an expansive stance in its monetary policy. The Pandemic Emergency Purchase Programme (PEPP) is likely to expire in March 2022. We expect a decision on the approach the ECB will take for December 2021. The central bank could provide the existing purchase programme APP with more flexibility in order to continue supporting the economic recovery with favourable financing costs. If the September labour market report in the US were to turn out positive, the Fed should already in November decide to reduce its monthly asset purchases. This so-called tapering could be completed around the middle of next year. We do not yet expect interest rate hikes in the US for next year though. Instead, we envisage moderate yield increases in the US and the Eurozone.

Currencies

The Fed should soon launch its tapering process, and the ECB should let the PEPP expire in March. We therefore expect EURUSD to move sideways around 1.18. The continuing economic recovery and the moderately rising German yields should lead the Swiss franc to depreciate against the euro. We expect the gold price to remain by and large unchanged.

Equities

We expect the global companies to generate profitable growth in the coming quarters. However, the positive momentum should slow down, and earnings growth should fall short of first-half 2021 levels. As a result, the speed of the gains produced by the equity market should also slow down, and we expect volatility to pick up. The global equity market index should generate a return in a range of 0% to +5% in 4Q.

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