Chart of the month: asset classes pull a U-turn

The chart above shows the post-October rally is largely a mirror image of the pre-October sell-off.

What does this mean? Either you think the fundamentals have indeed flipped – no more inflation issue, central banks have pivoted and recession risk has faded – or it’s just a temporary closing of positions as trades became stretched or people took profits.

Of course, it’s probably a combination of the two, but given our view that inflation will remain sticky in 2023, central banks are likely to be committed to getting it under control, and we think the balance of probability points to a recession in the US and Europe, we suspect it’s more positioning than fundamentals.

So, we would be inclined to expect another flip of the chart before long.