Investors shift focus from Ukraine to the economy and central banks
Stock markets climbed steadily in the second half of March despite the war in Ukraine, higher energy prices, inflation and rising interest rates. For the time being, the markets are being supported by a buoyant economy and the realisation that shares are essentially the only investment that can resist inflation.
Economic data back in the foreground, with some glimmers of light to be seen
After more than a month of war, Russian troops have made only limited progress. While further escalation or a quicker solution cannot be ruled out, it seems likely that the conflict will drag on for a long time.
News from Ukraine now prompts less of a reaction from investors, who are shifting their focus back to the economic data. In March, producer confidence in the euro area turned out to be surprisingly strong, with figures for the service sector improving, while industrial numbers also held up very well.
This serves to confirm our scenario of strong but gradually cooling economic growth. It is also worth noting the sharp drop in the expectations for German industry (ifo) and the further decline in consumer confidence, mainly due to higher inflation.
Central banks faced with dilemma due to soaring inflation
Energy prices remain high, but measures were taken to mitigate the negative effects at the European summit last week. Nevertheless, inflation will continue to rise for some time to come.
The Federal Reserve will raise its key rate sharply this year, with the ECB likely to follow suit. Once inflation cools down, central banks can apply the brakes more lightly.
Bond yields have risen again over the past week. Both the US and Europe saw long-term yields rise to 2018 levels.
Strategy confirms share position, steps up holdings slightly but remains cautious
The robust economic picture is confirmed by surprisingly strong producer confidence figures, especially in the service sector. This gives us enough confidence to move to a neutral view on shares.
Our main risk scenario continues to be another energy shock. As long as that scenario remains on the radar, our share investments will remain slightly under their benchmark level.
High inflation is weighing on consumers and consumer sectors, which we are underweighting. Other sectors seem to be coping better, although we expect corporate earnings for the first quarter to shed more light on this. We are fully committed to the energy transition. Now that investment budgets are being increased, we are focusing more on alternative energy players.
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The information contained in this publication is for information purposes only and should not be considered as investment advice.