Investment banks warn that stagflation has arrived! U.S. index bulls are expected to have a bumper short-term harvest

With the reopening of the global economy, the growth of the world's major economies has accelerated. The worrying thing is that rising prices from a gallon of gasoline to an hour of labor may slow the economic recovery. These price increases, in turn, may force central banks to raise borrowing costs more quickly to curb inflation, and further drag down GDP growth when the business confidence index of major countries shows that the growth momentum may be weakened.

Bank of America warns: stagflation has arrived

Over the past few months, as the US economy has gradually recovered from the new crown epidemic, prices have been rising, and prices in various sections of the financial market have been high. Central banks have insisted that high inflation may subside in the short term.

Recently, concerns about rising prices have begun to emerge. Analysts from Bank of America Global Research warned that “stagflation has arrived” and a government report showed that as of August, the US inflation rate was still at a 30-year high. Even major central banks have admitted that high inflation may last longer.

Rather than dissipating, the price pressure has continued to stay firm, and it may become more and more difficult to eliminate over time. At present, the global energy shortage is also spreading in the UK, Europe and other places, shaking the confidence of investors. However, inflation concerns have not yet translated into sustained financial market actions. .

Athanasios Vamvakidis, global head of foreign exchange strategy at Bank of America G10 Group, said: "The market has just begun to realize that global economic growth may be weak, inflation may be more persistent, and rising energy prices have sounded the alarm for the market. What may happen is that inflation rises and output falls."

He believes that the trend of the financial market in 2022 will be more "obvious." He believes that stagflation is spreading globally, but it is becoming more serious in the United States, which may prompt policymakers to tighten monetary policy more aggressively than expected.

Low stagflation may continue for a long time, and the central bank may need to tighten policies more strictly

The term stagflation is reminiscent of double-digit inflation in the 1970s and long lines waiting for refueling, so analysts have been reluctant to use this term. For ordinary people, this is basically the worst-case scenario because it leads to stagnation or decline in real income and destroys purchasing power. The current situation proposed by many banks such as Bank of America is more like the result of low stagflation, that is, inflation will not necessarily rise sharply from the current level, but it will last much longer than previously expected.

Wanwajidis said that he envisioned a situation that, relative to expectations, US inflation continued to rise unexpectedly and economic growth continued to fall unexpectedly. He believes that the core personal consumption expenditure index (PCE) may remain above 3% in 2022, which will make inflation high enough to allow the Fed and other central banks to weaken output and risk fluctuations in asset prices. Tighten monetary policy more strictly than expected. At the same time, analysts at Capital Economics in London believe that the United States will usher in an era of high inflation that will last for 10 years.

Gang Hu, managing partner of WinShore Capital Partners, a New York hedge fund, said: “The inflation rate is likely to be at the level of 3% to 4% for a period of time. The supply-side disruption is not over, we are entering a The period of knowing what short-term inflation means. Once this event has passed, we do not rule out the possibility of long-term deflation, because policy makers are overly acting on the other side. However, the market has not yet lost confidence in the ability of the central bank to control inflation. "

In the signs of the global energy crisis, Google searches for the term "stagflation" surged. Brent crude oil is still above US$80 per barrel, and European natural gas prices have set historical records. At the same time, bottlenecks in the supply chain are pushing up prices because the closure of factories has shaken the global economy. Algebris Investments portfolio manager Alberto Gallo said that financial markets are swinging between concerns about stagflation and hopes of accelerating gross domestic product (GDP).

On Thursday (October 7), the US dollar index fluctuated within a narrow range, trading above the 94 level. Faced with the risk of stagflation, market risk aversion and the prospect of the Fed's tightening policy are expected to bring dual momentum to the US dollar in the short term. The non-agricultural employment data to be released this Friday is currently receiving market attention. If this data is weak, it will undoubtedly strengthen the influence of this theory. Promote the short-term safe-haven demand for the U.S. dollar. And if the employment data perform well, the expectation of the Fed's tightening policy is also expected to push the dollar upward.


(U.S. dollar index daily chart)

GMT+8 At 20:33 on October 7th, the U.S. dollar index reported 94.21