Highlights:

• Central banks are on a mission to fight the inflation beast – whatever it takes, even a recession. The financial mood will remain gloomy this summer as economic data deteriorates while central banks walk their hawkish talk. 
• We expect the Fed to turn less aggressive this autumn, as it faces a deterioration of the economy and, eventually, employment data. Inflation headlines will also cool off by then, and more so in Q1. 
• But for now, central banks (CBs) are left lamenting about second-round effects. The ‘wishful-thinking’ approach to policy (inconsistent ECB and Fed forecasts) have also delayed the market reckoning about the economic pain. We also question the ECB’s political and legal capacity to reallocate its huge balance sheet as it tries to lean against fragmentation.
• We stick to our guns, with an underweight in equities and an overweight in high-quality credit. Increase cash over summer, whilst reducing the shorts in both core Govies and duration.
   

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