Deutsche Bank sees equities likely to end the year higher but highlights important headwinds. Here’s the bank’s view on equities, FX, rates, and oil for 2022.
The first three trading weeks in the new year are behind us, and the stock market is already down more than 7%. To many investors, a correction was overdue because of the unrealistic valuations some companies have traded at.
However, others see that the stock market still has upside potential in 2022. After all, the year barely started, and central banks did not even react to rising inflation.
Deutsche Bank is one of the most influential investment banks in the world. Its research department delivers world-class analyses, and it sees higher equities for 2022, although highlighting some inherent risks.
The main risks to its forecasts are rising inflation, ongoing supply chain bottlenecks, and the COVID-19 pandemic.
Deutsche Bank remains overweight on equities. Its year-end 2022 target for the S&P 500 is 5250 points as it sees the growth momentum to continue to drive markets.
Moreover, the rise in the long-term interest rates should not stop equities from making new highs.
In the currencies market, Deutsche Bank is bullish on the US dollar. It has a target for the EUR/USD of 1.08 at the end of the year, on the back of divergent monetary policies between the Federal Reserve of the United States and the European Central Bank.
As such, it sees the federal funds rate near 2% by the end of the year, while the interest rates in the euro area to remain stuck where they are now.
The fiscal implications of the midterm elections are seen as key for the rate markets in 2022. A repricing of the US10Y yield in a 220-240 yield in the second quarter and then a reversal represent a possibility.
Interestingly enough, Deutsche Bank sees the WTI crude oil price falling back to the $60/barrel area towards the end of 2022. It cites rises in oil surpluses as the main reason for the decline.
Three weeks into the new year and Deutsche Bank’s predictions are shaking – oil trades above $84/barrel, EUR/USD is above 1.13, while the S&P 500 dropped more than 7%. However, there is still a long road ahead until the end of 2022, and time will tell how many of these predictions will come true.