Highlights:

• The fallout from the Russian war in Ukraine exacerbates global price pressures further. It comes on top of already elevated pre-war inflation on the back of high energy prices, supply bottlenecks and a post-Covid recovery. 
• Moreover, huge uncertainties surrounding the war and the sanction-retaliation spiral add to central banks (CBs) headaches and create stagflationary challenges. Monetary policy responses will be heterogenous. 
• With second-round effects from high inflation unfolding the Fed and the BoE are most advanced in lifting rates. Amid QT we look for a total of seven and respectively five hikes this year. Still, policy rates will remain below neutral. 
• The euro area and Japan are laggards in the business cycle. However, we expect the ECB to start hiking rates in December after a period of almost stalling growth, as it will need to address second-round effects from the labour market on inflation. The BoJ is struggling to keep its policy constant. Markets could force her to give in rather sooner than later. bts are rising that it will manage to prevail. 
• In this uncertain stagflationary environment government bonds face headwinds and we see yields rising further. We are also cautious on equities near term. The euro is set to gain lasting ground against the greenback only once the ECB embarks on its normalization cycle. 

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