A just-published report updated our multi-asset recommendations, noting that the environment was becoming increasingly risky with global growth slowing, yet inflation has stayed high and is proving sticky in the developed world. The level of policy rates and bond yields is not yet historically elevated, especially in real terms, but the relentlessness nature and speed of the rise is becoming worrisome.
Global financial markets are extremely oversold and the leading central bank, the Fed, is likely nearing its peak hawkishness. Nevertheless, the danger is that any easing in inflation may prove insufficient to prevent additional policy tightening in the next year, and thus the risk is that policymakers are forced to push the global economy over the cliff.
A cautious cyclical investment stance is still warranted, despite the prospects for a short-term reprieve. We remain overweight cash and underweight bonds in in a multi-asset portfolio. Global equities have already discounted a mild recession and are very oversold, which warrants neutral exposure.