Stock market “carnage” is set to continue as the Fed hikes and Chinese and global growth slows, TS Lombard said.
The consultancy said asset prices in general are likely to keep suffering, meaning hedging opportunities are “thin on the ground.”
The global slowdown is unlikely to cause the Fed to hold back on rate hikes, as much inflation is domestically generated, TS Lombard said.
The “carnage” in stock markets will continue as the Federal Reserve raises interest rates and Chinese and global growth slows, consultancy TS Lombard has warned.
Freya Beamish, head of macro research at TS Lombard, added asset prices in general were likely to keep falling, meaning hedging opportunities are “thin on the ground.”
Stocks have tumbled dramatically in 2022 as the Fed has hiked rates to try to control inflation, and Russia’s invasion of Ukraine has added to global economic concerns.
“Market carnage is set to continue, as three cycles are ending at the same time,” Beamish said in a note to clients Tuesday. Those cycles are coronavirus, which boosted certain companies; China’s post-2008 credit boom; and the easy-money era of central bank policy.
Beamish said the Fed is set to continue to raise interest rates sharply. She said a slowdown in the world economy is unlikely to meaningfully lower strong US inflation, given that much of it is driven by strong domestic demand.
Further hikes are likely to extend the pain for US markets, which have been locked in a post-financial crisis “asset cycle” that has boosted prices sharply.
“It is becoming clear that a hard landing from the equity market perspective is almost a requirement for controlling inflation,” Beamish said.
The TS Lombard economist said the Fed and slowing global growth are moving in a “pincer” movement.
“What is inside this pincer? Unfortunately, until something breaks, it is asset prices in general, leaving hedging opportunities thin on the ground.”
Beamish warned that the global slowdown should not lull the Fed into holding back from increasing interest rates more sharply. If it does, inflation could get out of control again and the central bank could be forced to hike rates even harder later on.
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