Highlights:

• Good data on the economy and earnings, in conjunction with less hawkish expectations on the FED helped markets overcome the fears about the state of the banking sector.
• Yet we expect the economic slowdown, the looming credit crunch, lower earnings and rising defaults to take their toll on financial markets.
• The war in Ukraine, simmering US/China tensions and the US debt ceiling dispute are adding to the downside risks.
• We maintain a cautious stance on Equities and High Yield (HY), while favouring Government Bonds, non-financial EUR Investment Grade (IG) Credit and – more cautiously – EM bonds. We also like US Treasuries for their hedging properties against more adverse scenarios.

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