Derpcon warning
A central bank 'pivot' looms (Free)
Markets have been under heavy pressure for the past month, like we warned on the 29 August. Recent developments, i.e., the near-collapse of the pension funds of the U.K. and the troubles of the Swiss banking giant Credit Suisse have clearly scared global leaders. Thus, now it’s time to reconsider.
Recent comments by the Managing Director of the International Monetary Fund, IMF, Kristalina Georgieva and United Nations Conference on Trade and Development, UNCTAD, on the Federal Reserve causing a global recession and that there is “still time” to walk back on that, is putting heavy pressure on the Fed to ‘pivot’, that is, to soften its stance towards inflation.
This could first come as a ‘Fed talk’ (by the presidents of the regional Federal Reserve banks) that “the pace of inflation is clearly slowing”, “‘neutral rate’ has been achieved” and/or “new economic data forces us to reconsider the path of hiking” (the “nuclear option”). We are quite confident that the FOMC (Federal Open Market Committee) is at least considering this option, as they do not want to crash the financial markets.
Such a move would most likely lead markets to rally. This would naturally not remove the underlying economic ‘hindrances’ (inflation, war, sanctions, already high interest rates and impending recession), implying that any such ‘bear market rallies’ are likely to be relatively short-lived.
Thus, while this is not a complete “anti-warning”, it should be noted that we will probably experience (likely a relatively short-lived) relief rally in the markets during the coming days or weeks, if the Fed does pivot (and no further banking troubles emerge). If the Fed does not pivot this week or the next, expect market turbulence to get even heavier.
However, it may require a larger shock, like the collapse of a major investment bank, for the FOMC to truly change their stance, and in that case an utter collapse of the financial markets is a real possibly.
Uncertainty is extremely high currently.
Disclaimer:
The information contained herein is current as at the date of this entry. The information presented here is considered reliable, but its accuracy is not guaranteed. Changes may occur in the circumstances after the date of this entry and the information contained in this post may not hold true in the future.
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