Market dynamics shifted quickly in the quarter, with inflation gaining ground in April and May while aggressive central bank action increased the potential for an economic slowdown. Inflation’s current lofty levels are not likely to unwind quickly. However, the expected pace and magnitude of interest rate increases lower the probability of a soft economic landing. Raising interest rates works best to combat inflation caused by high demand and low supply. It slows demand and reduces prices.
Today, we are in a supply crunch. Energy shortages, lingering supply shortages related to COVID lockdowns (especially in China), de-globalization trends and global coordination of sanctions against Russia are all increasing supply-side issues. Unfortunately, supply-induced inflation is harder to solve with higher interest rates. To do so, central banks need to be considerably more hawkish. In turn, central bank tightening fuelled recession fears in June as markets grappled with the potential for a significant economic slowdown.
In this edition, we’ll share our perspective on current market themes and trends plus the latest economic developments. We’ll dive deeper into the levers we use to protect capital and how we take advantage of long-term investment opportunities when they arise.
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