Since last quarter, the global picture of the financial markets has barely changed. The ongoing war in Ukraine is responsible for soaring gas prices and remains a festering wound for the Western world. Global high inflation and technically battered and volatile stock markets are trying to bottom out, but aggressive interest rate measures, high inflation and increasing concerns about an imminent recession provide no end to the downward movement. Therefore we have maintained our cautious positioning in the equity markets since the beginning of February. Stock market valuations have become more favorable, but the central bank's monetary policy has become significantly more restrictive during the second half of the year in line with a weakening economy. This puts the more favorable valuation of the stock markets into perspective. In addition, analysts have scaled back earnings expectations for 2022, which are now below 2021 levels.
However, there are also signs that inflation in the USA may have peaked. As soon as inflation starts to fall, long-term inflation expectations will stabilize again at lower levels. A decline in inflation is a prerequisite for a recovery of the financial markets. Only when inflation has reached its peak and inflation rates stabilize, perhaps even decline again, can the US Federal Reserve move to a less aggressive path in its interest rate policy. Other central banks, such as the ECB, will then probably follow in its wake.