A bumpy road towards normalization 

  • Macro: We are lowering our global GDP growth forecast for 2022 to 4.2%, as supply bottlenecks and higher inflation last for longer than anticipated. The US will likely recover its pre-pandemic GDP trend by 4Q22, while the eurozone might get there a year later. Monetary policy will gradually normalize. We expect the Fed to hike rates twice next year and three times in 2023. The ECB’s QE will likely continue at a slower pace into 2023, with no change in policy rates.
  • FI: UST yields are likely to drift upwards accompanied by a long-lasting bear-flattening trend. Bund yields should remain low, with the yield curve showing a modest bear-steepening as ECB purchases gradually decline. Pulled by diverging forces, the 10Y BTP-Bund spread will probably trade around 125bp.
  • FX: Interest-rate differentials are set to remain the major driver of FX. In G10, we like the USD, GBP, NOK and the commodity currencies against the EUR, JPY, CHF and SEK. New COVID-19 developments may add volatility but are unlikely to prevent EUR-USD from dropping to 1.10 and below.exit on the UK economy to send EUR-GBP to 0.94 and we project that EUR-CHF will rise to 1.11. USD-JPY will likely drop below 100. 
  • Equities: European equities have the potential to grow by about 10% in 2022, mainly supported by solid earnings growth, while volatility may remain elevated over the next few months, as uncertainty surrounding COVID-19, high inflation rates and the policy response of central banks is likely to persist.t be smooth. After a solid 2020, we expect defensive sectors to lose appeal and recommend broadly cyclical exposure.
  • Credit: We expect European corporate credit spreads will tighten by the end of 2022. Rising inflation, higher yields, supply-chain frictions and pandemic developments are the main challenges but their impact on performance is expected to be contained by supportive technical factors.

Source: UniCredit Research – The UniCredit Macro & Markets 2022-23 Outlook, 10 December 2021, 
Executive summary