Market Compass May 2022
- Escalation risks of the Russian war in Ukraine, looming cuts in EU energy supply and the fallout of China’s zero-Covid strategy are continued headwinds for the economy and risk assets.
- Complacent on inflation for too long, the Fed is rushing into sizeable rate hikes while ECB officials are considering a hasty lift-off as soon as July.
- Further upside for yields is more limited as global inflation is near peak and markets already discount a (too) long series of aggressive rate hikes.
- We keep a mild underweight on equities. Credit offers a juicy carry, but we prefer safer segments in Investment Grade (IG).