The ‘carnage’ will continue as the Fed hikes and China slows

  • Stock market “carnage” will continue as the Fed hikes and Chinese and global growth slow, TS Lombard said.
  • The consultancy said asset prices in general are likely to continue to suffer, meaning hedging opportunities are “scant”.
  • The global slowdown is unlikely to cause the Fed to rein in rate hikes as much inflation is generated domestically, TS Lombard said.

The “carnage” in the stock markets will continue as the

Federal Reserve

raises interest rates and Chinese and global growth slows, the consultancy TS Lombard has warned.

Freya Beamish, head of macro research at TS Lombard, added that asset prices across the board are likely to continue to fall, meaning hedging opportunities are “scant”.

Stocks have plunged sharply in 2022, as the Federal Reserve has raised rates to try to rein in inflation, and Russia’s invasion of Ukraine has added to global economic concerns.

The S&P 500 is down more than 15% this year through Wednesday, while the tech-heavy Nasdaq 100 is down 24%.

“The market carnage will continue as three cycles are ending at the same time,” Beamish said in a note to clients on Tuesday. Those cycles are the coronavirus, which boosted certain companies; China’s credit boom after 2008; and the easy money era of central bank policy.

Beamish said the Fed is ready to continue raising interest rates sharply. He said a slowdown in the global economy is unlikely to significantly reduce strong US inflation, given that much of it is driven by strong domestic demand.

Further gains are likely to spread the pain for US markets, which have been caught in a post-financial crisis “asset cycle” that has pushed prices up considerably.

“It’s becoming increasingly clear that a hard landing from a stock market perspective is almost a requirement to control inflation,” Beamish said.

The TS Lombard economist said the Fed and slowing global growth are moving in a “pincer” motion.

“What’s inside this caliper? Unfortunately, until something breaks, it’s asset prices in general, leaving little hedging opportunity.”

Beamish warned that the global slowdown should not cause the Fed to refrain from raising interest rates more sharply. If it does, inflation could spiral out of control again and the central bank could be forced to raise rates even higher in the future.

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