Read alsoThe United States is holding up well on the inflation front
But be warned: a slowdown in the US central bank’s key rate hike won’t necessarily force all rate cuts. Hence a chase with the risk of a stock market crash as stock investors are notorious for their anticipatory reactions and almost always factor in the worst-case scenario for tomorrow in their positions today.
The recession is anticipated by the bond market
Bond yields tell an identical, and thus not risk-free, story: the yield on US three-month debt has converged in recent days towards that of 10-year debt (below 4%), illustrating both market sentiment and the end of the approaching monetary tightening cycle and the onset of a recession. This is not a stagflation, but as the Anglo-Saxons like it, it remains to find the word to baptize this new macroeconomic situation. The contest is open…
Meanwhile, the yield on US 10-year debt is just under 4%. The Fed’s hesitation – between continuing to raise its key rate, or a scenario of decline or simply stagnation – hasn’t given investors back the image of the bond market.
Bloomberg even released a statistic showing that the correlation between stocks and bonds hadn’t been stronger since 2012. In other words, it’s hard to go to the bond market to seek diversification or protection against the risk of a stock market crash.
That’s why nobody likes the traditional 60/40 portfolio of stocks and bonds investors anymore. Because the yield curve has reached an “extreme inversion” on the bond market, a sign that financiers remain convinced that the cycle of monetary tightening will end in the relatively near future.
The scene of the accident
However, here is a new variant of Covid, discovered at the end of November, which causes volatility and fear. As we experienced in 2020, the fear is of reliving a new confinement in 2023 and a new stop in consumption and activity, and therefore in growth.
Conclusion: therefore, even if the markets reacted with a lot of volatility, we did not experience – immediately… – a stock market crash. But “we have to be careful,” admiralsmarkets.com says! Because the most extreme fear would be that of having to confine population again, which would undoubtedly lead to a further rapid decline in the financial markets. Time will tell…
And the dollar in all this?
Can the dollar also collapse? “A dollar crash is not the most likely scenario next year,” he notes The echoes, but it could cause a global earthquake. Explanation: the first international currency, still highly overvalued, could face a severe recession in the United States, combined with still high inflation.
Read alsoDollar, euro, yen… The currency war has just begun, that’s why
The year 2023 could play the revenge of “greenback losers” like the euro, yen, etc. but not emerging currencies… Indeed, the European Central Bank and the Bank of Japan, in particular, will continue to tighten their monetary policy as the US Federal Reserve approaches the end of its rate-hiking cycle.
Yes, it is the recession of its economy anticipated by the market for several months that has stopped the rise of the dollar and halved its performance from 15% to 7%…
