Markets may have overplayed a hand when it comes to believing that the worst of inflation is over and can retest their June 2022 lows, Business Standard report stated quoting Christopher Wood of Jefferies.
Quoting Wood's GREED & fear note to investors, the BS report pointed out that the US CPI report remains by far the most important monthly data point globally. The data released earlier this week (on Tuesday) meant that the peaking-out-of-inflation narrative, which drove markets over the summer, is, for now at least, in full-scale retreat.
“The situation remains the inverse of Goldilocks with the recession risks growing every time the Fed tightens. Jefferies expects the recession to begin in the third quarter of 2023 (Q3-23) and the last five quarters. This is why with the S&P500 remaining 8.5 percent above the June low of 3,637 and quanto tightening getting underway, GREED & fear would remain extremely surprised if there is not a re-test of that low,” Wood's note said.
Most global markets have staged a smart recovery since their June 2022 lows, BS noted. The S&P BSE Sensex has outperformed its peers with a rise of around 13 percent, as compared to NASDAQ (up 6 percent), Nikkei 225 and CAC 40 (around 5 percent each), and the S&P 500 (4 percent), informed the BS report.
Meanwhile, the US’ headline CPI inflation slowed from 8.5 percent YoY in July to 8.3 percent YoY in August, above consensus expectations of 8.1 percent YoY, it informed.
“The money markets now expect another 200 basis point (bp) Fed rate hikes to 4.25-4.5 percent by March 2023 while Jefferies’ US chief economist Aneta Markowska now expects another 200bp of tightening this year, up from 125bp previously expected,” Wood said.
BS further pointed out that the latest US CPI print has seen global brokerages such as Goldman Sachs also sound caution on the pullback rally seen since June 2022, who believe that the global stock markets have not seen a trough yet and are still in a bear phase.