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Hawkish Central Bank Expectations
With central banks such as the Fed, the BOE and the ECB widely expected to push ahead with further tightening this year, economic fears are returning to the forefront. Over the back end of last year, there was plenty of speculation of global downturn risks in the first half of this year as a result of rapidly tightening central bank policy and elevated inflation rates. While these fears died down a little over the first few months of the year as hawkish expectations fell back, they have now moved back into focus.
Still-hot inflation in the UK, means the BOE have no choice but to continue with tightening. The ECB has made its commitment to further tightening very clear, while the Fed has signalled support for further rate hikes given that the economy continues to show such resilience. However, the fear now is that while recession has been avoided so far, if central banks continue to push ahead with tightening, a recession will be triggered late this year or into next year.
Warning From Allianz
Allianz chief economist Ludovic Subran shared his concerns with Bloomberg today warning that “One of the main risks to the economy is the risk of policy mistakes from central banks, and this toxic policy mix risk between fiscal and monetary tightening at the same time.”Subran went on to warn over lingering liquidity risks in the banking system, saying: “I stand by my call to be very cautious with the liquidity situation. I still see a lot of leverage and a lot of concern about credit risk, and to be fair a lot of financial institutions also that need to continue to do the right testing. Remember, financial accidents could also come from exogenous shocks, think about climate risks.”
Technical Views
MSCI
The world stocks index continues to hold atop support at the 452.09 level following a sharp plunge lower earlier this year. Sitting around midway in the range between 382.37 – 525.21, downside risks remain given that prior sell off, with momentum studies sitting in negative territory also.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.