Highlights:

• 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 is already damaging its competitive position and may persist for years. 
• Tails risks are unusually fat. 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. Investor positioning is arguably defensive, but equity funds glob-ally have still seen inflows this year. Worryingly, we see cracks in the global financial plumbing, in part sourced in a shortage of safe collateral and extreme policy uncertainty. 
• High inflation will mostly prevent central banks to act as a credible lender of last resort in this difficult economic and financial environment. The attack on UK markets epitomises the limited policy room and contradictions. 
• We retain our defensive portfolio positioning for now, with a long cash position, and shorts in equities and High Yield. We keep a small duration position for now but see limited upside for risk-free yields from here. Treasuries are a better haven than Bunds. We find IG credit relatively cheap and offering attractive carry. 

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