Head Multi AssetAltri articoli
An end to inflation is in sight
Inflation is still centerstage in the markets and keeps generating bad news. But, for those who take a closer look at the price hikes, there are glimmers of hope. More particularly, inflation should now have reached its highpoint and a range of signals are now pointing to an easing in the pace of growth in the coming months. In addition, in some pockets, even to a downturn. This might well trigger a less hawkish stance from central banks, which we believe could represent a catalyst for equity markets.
As a result, concerning the mid- and long-term perspectives, we are now slightly expanding our equity position, although still keeping a defensive tilt in our positioning.
The monthly CIO update analyzes the current market environment and presents the backstories. Presenters are Mario Montagnani, Senior Investment Strategist, and Michaela Huber, Investment Strategist.
As they did last month, inflation and the restrictive attitude of the US Fed have had a major impact on market sentiment. An unexpected rise in August core inflation in the US led to a sell-out on the markets. This was exacerbated by a very aggressive stance from the Fed a few days later. Although overall headline inflation did retreat on the back of the lower energy prices, the costs of food, durables and, in particular, services went up. The reasons for this are twofold: first, bottlenecks behind production processes are only slowly improving (for example, in the car manufacturing industry). Second, the spillover effect from the sharp increase in energy prices is leaching into other categories such as services, food and durable goods.
But there are some positive signals. Inflation in durable goods slowed substantially over the past months and is tied to a very small number of items, from carts, to household goods and clothing. If we take a closer look at inflation behind services—about 60% of the total inflation basket weight—the unexpected increase in August was mainly caused bv the powerful combo stemming from the energy shock and the reopening, with hotels, transportation, recreational and leisure activities all back in strong demand. A very favorable base effect in 2021, when all these activities where still under pressure, also contributed to the higher reading of August. Shelter—another large component behind service inflation—grinded higher in a situation where mortgage rates doubled since last year. Therefore, we think headline inflation has now reached its highpoint. If so, the Fed might well blink short term and become less hawkish.
If that is the case, market sentiment—predominantly negative for the time being—could turn and provide support to equity markets.