Analysis-After fever week, global investors lined up wounds and prepared for more chaos According to Reuters
© Reuters. FILE PHOTO: An employee of foreign exchange trading firm Gaitame.com looks at a screen showing a chart of the Japanese yen’s exchange rate against the US dollar after Japan intervened in the currency market for the first time. since 1998 to present.
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By Davide Barbuscia and Dhara Ranasinghe
NEW YORK/LONDON (Reuters) – Global investors are bracing for more market turmoil after an epic week that boosted asset prices around the world, as central banks and governments rallied strengthen the fight against inflation.
Signs of extraordinary times are everywhere. The Federal Reserve made its third rate hike in a row of seventy-five points while Japan intervened to strengthen the yen for the first time since 1998. The pound slid to a 37-year low. new against the dollar after the launch of the country’s new finance minister. historic tax cuts and huge increases in debt.
“It’s hard to know where and when what will break,” said Mike Kelly, head of multi-assets at PineBridge Investments (US). “In the past, the thought that a recession would be short and shallow. Now we’re throwing that away and thinking about the unintended consequences of much tighter monetary policy.”
Stocks fell everywhere. Nearly joined and Nasdaq in a bear market while bonds fell to multi-year lows as investors readjusted their portfolios amid persistent inflation and rising interest rates.
Topping them all was the US dollar, which jumped to a 20-year high against a basket of currencies, in part as investors sought shelter from wild volatility in the market.
“Exchange rates … are very violent in their moves right now,” said David Kotok, President and Chief Investment Officer at Cumberland Advisors. “As governments and central banks are in the process of setting interest rates, they are shifting volatility to money markets.”
For now, the sell-offs across asset classes have attracted few bargain hunters. In fact, many believe that things are bound to get worse as tighter monetary policy globally increases the risk of a worldwide recession.
“We remain cautious,” said Russ Koesterich, who oversees the Global Allocation Fund for Blackrock (NYSE:), the world’s largest asset manager, noting that his allocation to equities is “much below the norm” and he’s also cautious on bonds.
“I think there’s a lot of uncertainty about how quickly inflation will fall, there’s a lot of uncertainty about whether the Fed will do as much of an aggressive tightening campaign as they signaled this week. this or not.”
Kotok said he is conservatively positioned with high cash levels. “I want to see enough of a sell-off to make import prices attractive on the US stock market,” Kotok said.
The impact from the tumultuous week has exacerbated the trend in stocks and bonds that have been around all year, pushing down prices for both asset classes. But the dim outlook means they’re still not cheap enough for some investors.
“We think the time to buy stocks is still ahead until we see signs of the market,” said Jake Jolly, senior investment strategist at BNY Mellon (NYSE :). bottomed out. Government bonds.
“The market is getting closer and closer to pricing during this much-anticipated recession but it’s still not fully priced in.”
Tough week for global stocks https://graphics.reuters.com/USA-STOCKS/GLOBAL/dwvkrxoxapm/chart.png
Goldman Sachs (NYSE:) strategists on Friday lowered their year-end target for the benchmark US stock index, the S&P 500, from 4,300 to 3,600. The index was last at 3,693.23.
Bond yields, inversely proportional to price, have risen sharply around the world. Yields on the benchmark 10-year US Treasuries hit their highest in more than 12 years, while German 2-year yields rose above 2% for the first time since late 2008. In the UK, gains Five-year bond yields jumped 50 bps — their biggest one-day jump since at least late 1991, according to Refinitiv data.
Matthew Nest, global head of fixed income based at The road for government (NYSE: Global Advisors), who say bond yields have gone so high that they’re starting to look “quite attractive.”
Central banks strengthen anti-inflation https://graphics.reuters.com/GLOBAL-CENTRALBANKS/klvykaanlvg/chart.png
Investors fear things will get worse before they get better.
Mike Riddell, senior fixed-income portfolio manager at Allianz (ETR: Global Investors in London).
Because monetary policy tends to work with a lag, Riddell estimates renewed hawkishness from central banks means the global economy will be even weaker by the middle of next year.
“We are of the view that markets are still underestimating the impact of upcoming global economic growth,” he said.
