We believe the US may be heading towards a soft landing, even if the risks of a recession for mid-2023 have increased. The deterioration of economic activity is still not a product of the ongoing Fed monetary tightening, the labour market is still buoyant, but dark clouds are amassing over the horizon. The second quarter GDP reading marked the beginning of a technical recession, but the most recent estimate shows signs of an expanding economy.
“Ladies and gentlemen, this is your captain speaking, we would suggest you keep your seatbelt fastened as we are approaching an area of turbulence”. Every one of us has heard these words at least once; today, however, this sentence does not only apply to air travel but describes the current situation in global markets.
Markets have been on a bumpy ride over the last few months, and the end of the season further complicates the global macroeconomic scenario. After a summer characterised by a short-lived rebound of risky assets, particularly in the US and Europe, divergences in economic growth prospects, inflation and policy responses are now becoming more prominent. As a result, the stagflation scenario is coming back on the scene as one of the main risks for developed markets.
