Global Markets Overview: July 2022

Our latest Investment Outlook & what markets are pricing-in

• In many developed economies, policymakers and households continue to grapple with stubbornly high inflation.
• This has driven both a sharp increase in real yields in recent months as policy is discounted to tighten aggressively, and an increase in recessionary risk as real incomes decline and policy tightening bites.
• It is not clear to us if equity markets and other risky assets adequately reflect this dual hit to prospective conditions: the first is discount rates increasing primarily due to real rate increases, and the second is cashflow certainty/earnings prospects declining due to growing recessionary risks. This means – despite material declines in equity prices this year – we have a marginally negative view on the range of equity return outcomes over the shorter-term, because current pricing may not adequately reflect higher real rates and weaker earnings prospects.

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