Market Compass October 2022
- The fast-track monetary tightening and the EU energy crisis are powerful headwinds for the global economy: recession forces are set to grow over the turn of the year.
- The depth of the EA recession will partly depend on winter temperatures. Europe’s large negative terms of trade shock are already damaging its competitive position and may persist for years.
- The worst scenarios are getting more likely. The Fed’s pivot and eventual opening of the diplomatic route in Ukraine are great bullish triggers, but unlikely in the near term.
- We are still focused on the downside for now, as risk assets fail to price enough bad news. We see cracks in the global financial plumbing, in part due to a shortage of low-risk assets and extreme policy uncertainty.
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