The Fed has left the party
- Fed tightening will start in March. They promise to be nimble, not gradual, i.e. less predictable, more data-dependant, and possibly faster.
- We still expect the unfinished global recovery and decent earnings growth to lend support to risk assets. Yet two key risks are materialising: a tougher Fed and rising energy prices. We scaled back our Equity overweight (OW).
- In FI we retain an OW in Credit given residual ECB support and resilient fundamentals; we stay UW long-dated Govies. Both positions are paying off.
- The USD still has legs on Fed support, but we expect a reversal of fortune later this year.