Many central banks, like the Fed, are still solely focused on pressure to quickly get core inflation back to 2% without fully acknowledging how much economic pain it will take in a world shaped by production constraints.
The new regime of macro volatility is playing out. Business activity is slumping and higher inflation persists.
The energy crunch will drive a recession in Europe, as we’ve argued since March. The crisis has worsened since then as Russia has halted gas supplies.
We’ve argued for a while that we’re in a new macro regime. Central bankers at the recent Jackson Hole forum started to recognize this reality.
We see company earnings deteriorating amid a rotation in consumer spending and a sputtering restart. This is partly why we remain cautious on stocks.
We prefer investment grade (IG) credit over equities on a tactical horizon as we see a new market regime with higher volatility taking shape.
Investors are strapped in for a market rollercoaster in a new regime of increased volatility. Views on central bank rates are shuffling fast, as last week’s market reaction to the Fed’s rate hike showed.
The Fed is set to raise rates by an additional 0.75% or more this week as it scrambles to raise the fed funds rate into restrictive territory to rein in inflation.
The European Central Bank (ECB) is set to lift rates for the first time in over a decade this week.