Saxo bank forex forecasts
But why should we listen when these same people never conceived that inflation could reach above 8 percent in both Europe and the US? This creates the next macro policy change and response we will need to look for in Q3 Given a policy choice of either higher inflation or a deep recession, the political answer will likely be to instruct central banks, directly or indirectly, to move the inflation target up from 2 percent.
The optics of this would hopefully mean requiring a bit less tightening, but also that negative real rates, or financial repression, are a real embedded policy objective now. The holes in this policy argument are that none of this addresses the imbalances in the economy. Whether the Fed has a 2 or 3 percent inflation target does not create more cheap energy. This is exactly why inflation will continue to rise structurally. Q3 and beyond will make it clearer that political dominance pulls far more rank in the new cycle than monetary tightening, which will forever chase from behind.
The great moderation is dead - long live the great reset. The bottom of this bear market could arrive later this year or far away as the first half of In the meantime, commodities and defence stocks are the two themes which we expect to continue doing well until equities hit bottom in the current drawdown.
Earnings for global companies are already down 10 percent from their peak in Q2 and the outlook is not looking rosy. Investors are simply slow at updating their views, and we observe no material change in behaviour among retail investors, which is also why this equity market has more room to fall.
The bear market will likely not exhaust itself until the new generation of investors that went all-in on speculative growth stocks, Ark Invest funds, Tesla and cryptocurrencies have fully capitulated. For every percentage point that the energy sector is getting relative to the other sectors, ESG will be under more pressure on performance, and the resurgence of fossil fuels could cause a crisis for ESG funds suffering from outflows over poor performance and lack of exposure to natural resources amid the new age of inflation.
We expect these themes to continue doing well until equities hit bottom in the current drawdown. The only exception to tangible assets winning is real estate. Low interest rates combined with tight supply in many urban areas in the US and Europe have pushed real estate into a position where it is quite vulnerable to rising interest rates in the short term. We stick to our forecast in Q2 that gold—and silver—following a period of consolidation in the second quarter, will move higher during the second half of the year, with gold eventually reaching a fresh record high.
While the energy transformation towards a less carbon-intensive future is expected to generate strong and rising demand for many key metals, the outlook for China is currently the major unknown. In addition to the challenges of high volatility and historically bad returns on investments, the immediate challenge relates to future expectations for demand.
The US dollar has surged in correlation with the steady repricing of ever more Fed tightening. It will likely only find its peak and begin a notable retreat once either the economy lurches into a disinflationary demand-induced recession or the market realises that the Fed can never catch up with the curve, because if it did, it would threaten the stability of the US treasury market. This wears on sentiment and global financial conditions.
If that is the case, then the USD will only begin turning once economic reality finally flounders, sufficiently reversing inflation via a demand-induced recession. Only then will the US dollar finally roll over after its remarkable ascent to its highest level in more than 20 years.
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