Global equities have surged 13 per cent since the middle of June as investors predict the softening US economy will prompt the Federal Reserve to cut rates.
The jump in global equity prices in the past two months risks a rapid unwind as central banks, including the US Federal Reserve, tack hawkishly to fight persistent inflation despite slowing growth that has increased the chance of recession.
“We think it’s gone too far. Even a week ago I would have said that. We were positive in June but it’s gone past our targets,” Mr Vail said. The idea that the Fed will shift from a hiking cycle to an easing cycle underestimates the sticky nature of inflation, according to Mr Vail, who expects the level of rising prices to be persistent above the Fed’s target for at least the next year., heralding a belief that the inflationary burst of the past year has peaked. On an annual basis, the July CPI data showed prices had jumped 8.5 per cent from a year earlier, below consensus estimates and a drop from the 9.
“The fact is the labour market is very tight, there are a lot of wage pressures, there is a lot of pricing power for corporations who are raising prices. Pricing power is still very high despite a somewhat sluggish economy.”
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