2022 Scenarios:
Base Scenario “Profit Squeeze”: •Cost inflation continues to be high and squeezes in profits and real incomes slow the global economy. •The Fed will tighten policy as anticipated and push inflation expectations down towards 2%. But ECB will stay put, why the USD will strengthen. •China will continue its policy-driven slowdown. •Tighter policy initiatives happen without hurting the Credit&Liquidity cycles critically. •Weaker growth prospects turn investors’ focus back on valuation and dampen risk asset performance.
Risk Scenario “Goldrush continued”: •Inflation will cool off when short/medium-term supply-chain disruptions are easing off. •Fed will tighten policy more than anticipated as 2. round inflation effects (wages/rents etc.) will catch up. As a result, the credit and liquidity cycle will weaken but not critically as inflation expectations stay below 3%. •Households will benefit from solid real income & wealth gains, while companies continue to benefit from the secular digital growth trends. •Despite higher risk-free rates, solid growth prospects keep investors’ risk appetite relatively high.
