On the heels of the pandemic, the world is now having to deal with spillovers from Russia’s war, which is threatening a recession not only in Europe but across the developed world, and China’s ad hoc lockdowns. Corresponding supply shocks are fueling inflation across the globe, prompting central banks to tighten monetary policy further into restrictive territory. Emerging economies are struggling to cope with currency devaluations. Fiscal withdrawal is adding to the tightening, as governments attempt to address impaired public finances after the COVID-19 related stimulus of recent years. In August, we maintained our outlook for three months of Recession followed by nine months of Inflation for the U.S. economy.

The Chinese economy advanced 0.4% year over year in Q2 of 2022, slowing sharply from a 4.8% growth in Q1. This is the softest pace of expansion since a contraction in Q1 2020, when the initial coronavirus outbreak emerged in Wuhan. For the first half of the year, the economy grew 2.5%.1 China’s annual inflation rate rose to 2.7% in July 2022 from 2.5% in June.2 China’s surveyed urban unemployment inched down to 5.4% in July 2022 from 5.5% in June.3 The Euro Area economy expanded 3.9% year-on-year in the second quarter of 2022.4 The annual inflation rate in the Euro Area was confirmed at a new record high of 8.9% in July of 2022.5

The American economy shrank an annualized 0.9% on quarter in Q2 2022, following a 1.6% drop in Q1, technically entering a recession.6 Net trade made a positive contribution for the first time in two years, as exports jumped 18%, led by industrial supplies, materials, and travel, and imports were up 3.1%.7 The U.S. unemployment rate decreased to 3.5% in July 2022, the lowest since February 2020.8 The annual inflation rate in the U.S. slowed more than expected to 8.5% in July of 2022 from an over 40-year high of 9.1% hit in June.9 Canada’s annual inflation rate was at 7.6% in July of 2022.10 Canada’s trade surplus widened to CAD 5.0 billion in June of 2022, from a downwardly revised 4.8 billion in the prior month. It was the largest monthly trade surplus since August of 2008, as exports rose 2.0% from a month earlier to a record high of CAD 69.9 billion, primarily driven by higher sales of energy and metals and non-metallic mineral products.11

After a tumultuous first half of the year, U.S. equities staged a comeback in July. The S&P 500 posted a gain of 9.2%, while the S&P Mid Cap 400 and S&P Small Cap 600 performed relatively better, up 10.9% and 10.01%, respectively. Canadian equities rebounded in July, with the S&P/TSX Composite up 4.7%. The S&P Europe 350 gained 7.6% in July, with all its constituent countries ending the month in the black. The U.K. was the biggest contributor to the pan-European benchmark’s gains, partially driven by the British pound’s 3% appreciation against the common currency over the course of the month, rising 3.6%. Worries about slowing growth and a potential recession in Europe drove down sovereign and corporate bond yields across Europe, resulting in broad-based gains for our range of regional fixed-income indices, amongst which the S&P Eurozone 7-10 Year IG Corporate Bond index was the best performer, up 7.1% in July. International equities started to reverse year to date declines, with the S&P Developed Ex-U.S. BMI up 5.3%. The S&P Pan Asia BMI gained 2.4% in July.

In August we continued with the defensive asset allocation that was established in May. Cash remains at 10% across all models. U.S. earnings are showing signs of stress in industries where inflation is impacting consumption. Gold is a safe haven in times of uncertainty, including inflation. Canadian oil and liquid natural gas directed through the U.S. pipeline system for export to Europe is benefiting Canada. Volatility is expected to continue in the fixed income arena. While we monitor events, we have noted that some of the global price pressures have shown signs of easing. Global shipping costs (and times) have been declining and wheat prices have reversed their surge on the initial Russian invasion of Ukraine. Oil prices have fallen from early June, pushing gasoline prices lower. In many countries, higher house prices have also shifted into reverse as early interest rate hikes cool housing markets.

So far in August, global equity markets have retreated, after Federal Reserve Chair Powell closed the door to a near-term dovish pivot at his highly anticipated Jackson Hole appearance on August 26th, signaling that the central bank is likely to keep raising interest rates and leave them elevated for an extended time to curb inflation. As monetary policy is forward looking and works with long and variable lags, we have concerns with a forward-looking policy based on lagging data. The probability of a “soft landing” is becoming less likely. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.


Deborah Frame, President and CIO


1 Trading Economics. China GDP. July 15, 2022.

2 Trading Economics. China Inflation. August 10, 2022.

3 Trading Economics. China Unemployment. August 10, 2022.

4 Trading Economics. Europe GDP Growth. July 15, 2022.

5 Trading Economics. Europe Inflation. August 18, 2022.

6 Trading Economics. U.S. GDP Growth. July 28, 2022.

7 Trading Economics. U.S. Trade. August 4, 2022.

8 Trading Economics. U.S. Unemployment: U.S. Bureau of Labor Statistics. August 5, 2022.

9 Trading Economics. U.S. Inflation. August 10, 2022.

10 Trading Economics. Canada Inflation. August 16, 2022.

11 Trading Economics. Canada Trade. August 4, 2022.


Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. July 31, 2022. Index performance is based on total returns and expressed in the local currency of the index.