In this August edition of Edison Group Insight, Alastair George believes that incoming data continue 2022’s challenging themes of rising inflation and slowing growth. The sharp equity rally during the past six weeks may have been driven by overly bearish market positioning rather than any improvement in fundamentals. Despite suggestions of a peak in US inflation there remains in our view a long period ahead of above-target inflation and comparatively tight monetary policy in developed markets. Commodity and energy prices are well below the levels recorded earlier in the year while the lagged effect of tighter monetary policy is now apparent in slowing economic data. There may be merit in trimming overweight energy allocations in favour of defensive equities set to benefit from lower input costs, even if it is still too early in the cycle for a more aggressive shift in portfolio sector allocations. Europe’s adverse energy dynamics suggest caution is required in the region.
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