Royal Bank of Scotland has joined the swelling chorus predicting a disastrous downturn in global equity markets, reports the Telegraph. RBS analysts believe that S&P 500 will plummet 300 points, or 22%, by September. Credit markets will be just as vulnerable, says bond strategist Bob Janjuah:
I do not think I can be much blunter. If you have to be in credit, focus on quality, short durations, non-cyclical defensive names… Globalisation was always going to risk putting G7 bankers into a dangerous corner at some point. We have got to that point.
RBS thinks that as the effects of the stimulus package begin to diminish and inflation continues to soar, the economy will show signs of real deterioration. The Fed, meanwhile, will be hamstrung by high inflation, and will be unable to provide the needed relief:
The authorities cannot respond with easy money because oil and food costs continue to push headline inflation to levels that are unsettling the markets. “The ugly spoiler is that we may need to see much lower global growth in order to get lower inflation,” he said.
“The Fed is in panic mode. The massive credibility chasms down which the Fed and maybe even the ECB will plummet when they fail to hike rates in the face of higher inflation will combine to give us a big sell-off in risky assets,” he said.
Makes sense to us. So much for DOW 20,000.
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