Global Markets Overview: October 2022

In this report, we highlight how markets remain focused on a “Goldilocks” outcome rather than the bear(s):

• Markets are pricing-in that a number of major central banks will continue to raise their policy rates over the next 6-months, and will then stop hiking or turn to cutting policy rates.
• Bond investors are expecting these tighter monetary conditions to bring down inflation quickly in most advanced economies in 2023, especially the US. There is a good chance that inflation could be more “sticky” than markets are pricing-in.
• Equity markets and lower-grade credit markets are also pricing-in that these tighter financial conditions, to bring inflation under control, will only lead to a small slowdown in GDP and earnings growth, again in the US especially. Over the next 12 months, we think the risks are more tilted to the downside.