Tightening pain

In Short

Central banks’ (CBs) hawkish message at Jackson Hole could hardly have been more striking. Selective dovish remarks of Fed Chair Powell back in July (mulling that a slower pace of tightening may be appropriate “at some time”) had sparked an interim summer rally.

Highlights:

  • Hawkish speeches at Jackson Hole have poured cold water on nascent hopes that policy setters may blink soon amid rising recession risks.
  • Equity valuations and (thus far resilient) earnings will face stiffer headwinds into winter, with a recession in Europe looming amid an energy crunch and higher rates.
  • Investor positioning remains very bearish, leaving scope for selective bounces. Yet we still favour an underweight in riskier assets. Strong demand for the stretched USD is unlikely to reverse soon.
     

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Tightening pain

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