Global markets remain on the back foot and this affects currencies. It is partly a result of the Fed’s hikes. Will the central bank change its course?
Here is their view, courtesy of eFXdata:
Bank of America Merrill Lynch Research discusses a hot question on investors‘ minds is as equity market weakens: what will it take for the Fed to respond and pause or stop hiking? In other words, what is the “Powell put“.
“There is a “put,†but the “strike price†is much lower than it was at the beginning of the tightening cycle,†BofAML argues.
“The Fed is much more likely to respond to market weakness if signals a bad economy ahead. In recent weeks there has been a lot of doom and gloom talk. The economic recovery is“old.“ Growth and profit growth are peaking. Interest-sensitive sectors like autos and housing are rolling over. What if this is not a “correction“? What if the equity market is correctly smelling a recession ahead? After all, history shows that every bear market begins when the equity market correctly smells a recession 3 to 13 months ahead,†BofAML adds.Â
“Our Chief Investment Strategist Michael Harnett quips that “markets stop panicking when central banks start panicking.â€Â However, this time around we think the markets will have to find a floor without Fed help. We continue to expect quarterly rate hikes from the Fed,â€Â BofAML concludes.Â
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