Fynsa
The "more positive" news on inflation has been well received and will revive trade based on a "policy pivot".
You may say I am a dreamer: economic policies work and eventually we will return to equilibrium. It's not free, though, like nothing else in life.
The market is beginning to doubt that central banks globally will remain aggressive in the fight against inflation as risks to financial stability increase.
If at one time we were struck by how resilient some sectors of the economy were, we are now surprised by how quickly they have deteriorated.
The current context forces us to have a much more selective allocation, still with a certain overweight in equities.
Unless the "peak inflation" narrative is confirmed by both the data and a moderate policy pivot by the Fed, we believe the risk of a return of rate shocks and recession fears could once again weigh on risk appetite.
The downside surprise in July inflation in the US will help moderate inflation expectations, but the data remains too high to warrant an appropriate turnaround by the Fed.
This logic is rooted in the market playbook from past recessions, but "the world is different now; inflation is much higher."
It is likely that the focus in the second half of the year will need to be on at least two factors: inflation and interest rates.
