The Birdseye View- July 2022

Seasonal summer trends begin to present themselves in markets in spite of several important data points that were delivered this week. As previously discussed on inflation, a loaded 5% YoY May CPI print (April CPI was 4% YoY) was reported yesterday and re-confirmed the slow yet steady price increases we have been anticipating. Specific sectors continue to outperform vs the indices and big tech names remain range bound and supportive of composite levels. The rotation into value names has plenty of runway into the summer slowdown, however the search for left behind names is proving more and more difficult. We expect to see deleveraging of equity portfolios over the next few months which should put a bid under certain low Price Earnings Growth (PEG) names and follow through with the flight to quality we saw when the inflation data hit the market this week. Note that there was a fair amount of profit taking in fixed income markets in response to this number with the entire street leaning short on the rates market. As economies commence their re-openings, we are seeing moderate capital outflows and reallocation from the US and into European markets (both core and periphery). These flows can be tied to the border re-openings and recently lifted travel bans in those countries. On a related note, the European Central Bank (ECB) held rates at 0% and Lagarde expressed little concern over inflation exceeding their projections this year, rounding up in continued accommodative policy for the immediate future. The ECB expects GDP growth of 4.6% for 20201 and 4.7% for 2022. Lastly, we highlight some road bumps in the pandemic recovery out of LATAM as Covid-19 variants remain a threat to re-openings. Most countries in the region are lagging in vaccination accessibility, are experiencing an overflow in critical bed counts and are implementing new lockdowns on schools and businesses. These new developments may put some additional pressure on materials and metals which these economies are suppliers of. We have added some tactical short-term positioning in related instruments and continue to monitor economic data in anticipation of a change in tone or new risks introduced by the Federal Reserve in the upcoming months. With rates trading within a tight range, we remain vigilant of upcoming data points to provide more clarity on breakout levels and timing. In stocks, we continue to favor the energy sector as oil prices break the $70 per barrel level and maintain the course with the inflationary names, we have mentioned in previous write ups.

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