Weekly review by Steven Bell , Chief Economist (EMEA) at Columbia Threadneedle Investments

After a challenging first half of the year both equities and bonds enjoyed a reversal of fortunes in 2022. Does this bode well for the remainder of 2022?

• Markets responded to poor economic data by revising their expectations for interest rate rises downwards. I believe there is a flaw in that argument.
• Inflation is too high and too persistent which means the Federal Reserve will need to raise rates significantly higher. A US recession is looming and that makes a rise in unemployment and a fall in corporate earnings likely.
• Many investors expect a recession so potentially equities don’t have too far to fall but July’s rally looks set to be a short-lived one.
• Europe faces a challenging outlook as the cost-of-living continues to rise, especially in countries like Germany that are heavily reliant on imported energy.