Global equities have rallied strongly so far in October, despite stagflation fears and a spike in market-based inflation expectations. After the sharp decline in September, our sentiment and positioning indicators are still only in neutral territory. This widespread caution argues for a continued overweight in risk assets, in our view. Stagflation fears have been particularly prominent in the UK. We do think that some of the recent market action has been excessive though (see UK monetary policy, 19 Oct). As such, our rates strategists like receiving the front end (see Global Rates Ideas, 14 Oct). Hard macro data such as retail sales have also continued to be fairly underwhelming recently, and as such our FX strategists see growing downside for GBP-USD (see FX Tactician, 22 Oct). With sterling likely heading lower, we’d also see the recent  utperformance of UK small caps over large caps as ripe for reversal.