We revise down global growth, upgrade our inflation targets, and foresee more monetary tightening.  

The global outlook remains
abnormally uncertain. Europe is more vulnerable, and we assume that a recession
is ongoing. For China, the upcoming party meeting in mid-October could generate
some upside to our global outlook late this year. 

Inflation should gradually slow thanks to favorable base, the easing of supply bottlenecks and weaker demand growth due to the pressure of inflation on household’s purchasing power and corporate profits. Rising interest rates will also dampen credit demand. We think that the global economy is undergoing a regime with inflation likely to
settle at higher rates compared to the pre-covid period.  

For the Fed we assume a 50bps rate hike in November and 25bps in December. Hence, that will put the Fed funds rate at 4% by the end of the year, which we believe will be the terminal rate. For the ECB, We expect a 50bps rate hike in December, followed by 25bps
at the next meeting in February. The deposit rate would then reach 2.25% and
the refi rate, 2.75%. We see those levels as the end-of-cycle rate.  

We adjusted our bond yield targets. We now expect the German 10-year government bond yield to reach 2.25% in one year. For the US, we expect this yield to peak at 3.6-3.7% by year end before dropping to 3.25% in one year.   

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