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There are more and more signs that the risk of "stagflation" in the United States is at its peak, and the market is completely frightened. April may be a turning point for the market this year.
The US economic data released on the last day of April were really bad:
The month-on-month growth rate of the employment cost index (ECI) in the first quarter unexpectedly hit the highest level in a year.Ps5gamescrashingThe case Schiller house price index rose year-on-year in February to its highest level since November 2022
Chicago's PMI fell sharply in April, but business costs rose significantly; the Conference Board consumer confidence index fell to its lowest level in more than a year in April; and the Dallas Fed service income index plummeted in April.
Overnight, U. S. stocks and debt, international crude oil continued to decline, gold and Bitcoin also continued to decline.
Looking back on the whole of April, the US macro economy was a disaster: the Citigroup economic accident index plummeted to 7 from above 40 in early April.Ps5gamescrashing. 6 .
At a time when inflation is making a comeback, US stocks and bonds have both turned around, reversing the strong momentum of the past six months.
Both the s & p 500 and the Nasdaq fell more than 4% in April, while the Dow fell 5%, its biggest monthly decline since September 2022.
Us bond yields have risen all the way, with 10-year and 2-year yields rising 48 basis points and 42 basis points respectively in April, which is already above the key psychological threshold of 5 per cent.
Shares of the Seven Sisters closed down in April, the first decline since October last year.
In April, Chinese stocks outperformed US technology stocks sharply, and the CSI global China Internet index rose 9% in April.Ps5gamescrashing.5%, the Goldman Sachs TMT Megacap Tech index fell 2%.
Gold and Copper Oil pulled back at the end of the month after hitting a high in the middle of the month, with Bitcoin falling more than $10,000, or 16%, in April.
At the same time, the dollar has returned strongly. The dollar index has risen for the fourth consecutive month, rising sharply in the middle of the month.
Behind the jitters in US financial markets, the threat of stagflation is too serious to be ignored. Given that economic growth is lower than expected and inflation is generally higher than expected, Wall Street fears that a stagflation crisis comparable to that of the 1970s is imminent in the US.
A repeat of the great stagflation of the 1970s? Will Powell release eagles when the interest rate resolution is about to be announced in April?
JPMorgan CEO Jamie Dimon warned last week:
Right,Ps5gamescrashingI think this (1970s-style stagflation) is likely to happen again. Now our situation looks more like the 1970s. It looked quite optimistic in 1972, but it took a sharp turn for the worse in 1973.
The more noteworthy event in April was the tightening of financial conditions. Although financial conditions have tightened only slightly, this tightening trend is exactly what the Fed would like to see compared with the ultra-loose environment previously expected by the market.
The Fed's May interest rate decision will be announced in the early hours of Thursday, Beijing time, and the current consensus on Wall Street is that interest rates will remain unchanged this month, when the Fed's view of recent inflation trends will be the highlight of the decision.
Barclays expects that Powell will have to admit at a press conference on the same day that the inflation data are disappointing and may withdraw his previous statement that the policy is restrictive.
In a report released this week, the Barclays Ajay Rajadhyaksha analyst team said Powell's statement was likely to be hawkish because the meeting would not provide new bitmap and economic forecasts. However, Powell is still expected to lower market expectations of direct interest rate hikes in the future.
Will April be a watershed?
For investors, the question is, how long will the sell-off in US equities and bonds last?
According to Morgan Stanley's quantitative analysis, if US stocks continue to fall, the current systematized fund is expected to be forced to sell a large number of stock positions due to its extremely large long positions, causing the stock market to fall further.
A recent survey conducted by JPMorgan also shows that the vast majority of respondents expect the VIX volatility index to rise sharply for the rest of the year, indicating that investors are worried about more volatility and risk in the future.
At the same time, Barclays still takes a negative view of bonds and risky assets, arguing that risks tend to fall in both fixed-income and risky assets.
There was a rebound in risky assets last week, but we don't think the rebound may last. Although the market was temporarily boosted by strong earnings from giant technology stocks last week, the market as a whole remained volatile.
Even after significant selling pressure, fixed-income assets, such as bonds, still face downside risks. Expectations of an economic slowdown may be too pessimistic, and most of the selling pressure is due to higher interest rate expectations rather than an increase in risk premiums. Quantitative tightening will not provide a boost to the bond market as it did at the end of 2023; the size of the 2024 auction is likely to remain the same.
Risky assets are still overpriced and unattractive as hedges for long-term bond portfolios.
Barclays stressed the importance of cash, which it believes is a relatively safe option in the current volatile market environment.
This article is from Wall Street, by Bu Shuqing.