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Q3 2022 Macroeconomic Quarterly Update

François Christen

François Christen

Chief Economist

The economic and financial environment deteriorated sharply during the third quarter, as Western central banks turned increasingly tough to restore price stability damaged by soaring energy prices, supply chain deficiencies, unsustainable fiscal largesse and tight labor markets.

The growth outlook has darkened, as mirrored by recent surveys and ongoing decline in leading indicators. Central bankers expressed an explicit willingness to sacrifice growth, jobs and thus corporate earnings in order to fight inflation. This “hawkish” stance prompted a sharp increase in bond yields with major repercussions for the pricing of all financial assets.

Cyclical headwinds are not expected to abate soon. On the contrary, the fast and substantial increase in interest rates and the energy crisis boiling in Europe will further shrink real earnings and hinder private demand. Falling commodity prices could nevertheless provide some relief.

The geopolitical background is worrisome. The globalization process that has fueled low inflation for decades is reversing. The war in Ukraine shed a light on the erosion of the market friendly liberal democratic model that is increasingly challenged by the rest of the world, notably China. Rampant populism and nationalism, also taking root in the US and in Europe, carry serious risks for investors.

It may take time before the tide turns, but the picture is not completely grim. The rise in interest rates is largely priced in by the bond market. Further revision in central banks’ hawkishness cannot be excluded, but a large part of the correction is now history. Compelling signs that inflation is finally receding could prompt a significant rebound in depressed financial assets in a not so far future.

Macro

The odds in favor of a soft landing are increasing

Recent developments support hopes of a return to price stability without the pain of recession.
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Corporate

Results of the Extraordinary General Meeting of 16 November 2023

The shareholders of ONE swiss bank SA have largely approved the two agenda items put to a vote at today’s Extraordinary General Meeting.
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Macro

It’s high time to wait and see

Without getting too assertive, a cautious Jerome Powell cooled hopes of a rapid monetary turnaround.
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Macro

Full reversion

The FOMC, many symptoms of economic slowdown and the Treasury trigger a sharp fall in dollar yields.
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Macro

Choose your side, comrade investor

Should we be alarmed or pleased by the sharp upturn in bond yields? Some food for thought.
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Macro

The price to pay for a soft landing

The painful correction in US dollar bonds is mainly driven by a welcome rebound in "real" yields.
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Macro

Three pauses and plenty of uncertainty

Like the Fed, the Bank of England and the SNB are exercising restraint until the situation becomes clearer.
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Macro

The ECB enters uncharted territory

Compulsive and continuous interest rate hikes could give way to a long period of inaction.
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Macro

The focus is shifting to Frankfurt

Despite persisting inflation, weaker economic conditions should prompt the ECB to adopt a cautious stance.
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Macro

Neither too hot nor too cold (for now)

Recent mixed indicators are still compatible with a "soft landing" for the US economy.
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