Surprise, Surprise!

We are currently in the midst of one of the most aggressive hiking cycles in decades, and the full impact this will have on global economies is anybody’s guess. The next few years seem more uncertain than we’d like: will deglobalisation and its associated upheaval continue? How will the geopolitical landscape evolve in the wake of the war in Ukraine? When, where and how will inflation decline? In this article we present a framework using surprise indices to highlight similar periods in which the economy and inflation were unpredictable, and show that these periods tend to coincide with above-average performance for trend following programmes.