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Fidelity analysts’ perception of sentiment among managers at the companies they cover has been worsening for months. There was some sign of recovery in June as China began to come back online but that recovery has stalled, while sentiment has deteriorated elsewhere, notably in North America, Europe and EMEA/Latin America. As this week’s chart shows, the indicator is now at its most negative since we started asking analysts about it on a monthly basis two years ago. Leading indicators have also continued to deteriorate and are now at levels comparable to the early days of the Covid-19 pandemic.

Energy sector succumbs to gravity

One bright spot in recent months had been energy, with analysts covering that sector reporting positive management sentiment. That also changed in July as the scale of the coming slowdown in global demand overshadowed the surge in commodity prices this year due to the war in Ukraine. 

“There are more concerns over global growth and China's ability to support economic growth,” said one materials-focussed analyst. “There is evidence of demand destruction in energy, notably gas in Europe and oil in the US,” says another, who covers European integrated oil and gas companies.

Inflation pressures remain - but narrative could change fast

On the supply side, the energy sector is facing more acute labour cost pressures than any other sector, according to survey responses. Elsewhere, while analysts across the board expect input costs will continue rising, the anticipated magnitude of such rises has levelled off. 

In much the same way as last year’s ‘transitory inflation’ talk was overtaken by events, we may be about to see another swift change of narrative. As one North America-focused consumer discretionary analyst puts it: “Inflation is levelling off and I am turning cautious about top line slowdown rather than margin erosion from cost pressure.”

Fiona O'Neill

Fiona O'Neill

Director, Global Equity Research & Sector Investing

Gita Bal

Gita Bal

Global Head of Research, Fixed Income

Terry Raven

Terry Raven

Director, European Equities