We balance modest risk reductions in European and credit exposure with persistence of a risk-on stance in our allocation, as the likelihood of a temporary correction still seems significantly higher than the start of a new bear market. 

## A correction of around 5% is not uncommon

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## Markets correct for first time since April

For the first time since April, global equity markets witnessed a correction. First, at the end of July there was the negative market reaction to the stronger than expected US economic growth figure for the second quarter, which induced fears of an earlier than expected rate hike by the Fed. This fear was countered by slightly disappointing labour market figures a few days later. In last week’s Marketexpress we wrote more extensively about our outlook for the US.

## New chapter in Ukraine/Russia crisis

Last week, another event triggered a decline in risk appetite as a new chapter in the Ukraine/Russia crisis was written. The intensification of economic sanctions by the US and Europe was countered by retaliatory measures by Russia, resulting in an increased probability of an aggressive trade war between Russia and the West. The potential negative impact on the economy and earnings growth is of course a threat, for the Eurozone in particular. Germany may be the most vulnerable country through its export industry, but at the same time it is also best equipped to manage the downside. Overall, the impact looks manageable and only if Russia would retaliate through for example cutting energy supplies, the situation could become growth threatening for Europe. As growth is still very subdued, the Eurozone economy does not have a large buffer to absorb setbacks.