JPM European Equity strategists say the current shock differs markedly from 2022 playbook

In a note to clients, JPM says the current conflict-driven backdrop differs materially from 2022, despite investors increasingly drawing parallels. Visibility remains low and headline risk is extreme, leaving markets vulnerable to sharp swings between hopes of progress and fears of escalation. JPM says a key difference is inflation pressure: in 2022, Covid aftershocks, reduced labour supply and accelerating wage growth drove stubborn inflation. JPM argues that backdrop is absent today. Central banks also started 2022 with policy rates well below neutral and needed to catch up. That is also not the case today, limiting the case for a repeat of the same policy shock. JPM notes that demand conditions are weaker. In 2022, consumers had strong pent-up demand and elevated Covid cash balances, while companies had pricing power to pass on higher input costs. The bank suggests both supports are less evident now. Global growth momentum is also softer: Eurozone growth entered 2022 above 4%, versus around 1% currently. The bank highlights AI-related anxiety over jobs as another important difference. With labour market sentiment now very soft, it sees greater scope for a deflation narrative to emerge, unlike the stagflation fears that dominated in 2022. As a result, JPM does not expect the same pattern of rising bond yields, falling equities and surging European gas prices to persist. It warns early rate hikes could instead be seen as a policy mistake, raising the risk of a later reversal. On equities, JPM says markets are not fully pricing recession, but nor are they complacent. It notes the SX5E has already fallen 11% while gas has only risen from 30 to 60, versus a 20% SX5E drop in 2022 when gas surged from 70 to 300.