LONDON – The macroeconomic picture is deteriorating rapidly and could push the US economy into recession as the Federal Reserve tightens monetary policy to tame rising inflation, BofA strategists warned in a weekly research note.
“‘Inflation shock’ is worsening, ‘rate shock’ is just starting, ‘recession shock’ is coming,” BofA chief investment strategist Michael Hartnett wrote in a note to clients, adding that in this context cash, volatility, commodities and cryptocurrencies could outperform bonds and stocks .
The Federal Reserve signaled on Wednesday that it is likely to begin shedding assets from its $9 trillion balance sheet at its early May meeting, at nearly twice the rate of its previous “quantitative tightening” as it is facing inflation that is at levels four decades high.
A large majority of investors also expect the central bank to raise interest rates by 50 basis points.
In terms of notable weekly inflows, BofA said emerging market equity funds saw their largest inflow in 10 weeks at $5.3 billion for the week ended Wednesday, while emerging market debt instruments drew $2.2 billion, theirs best week since September.
It was also an eight-week outflow week for European stocks of $1.6 billion, while US stocks enjoyed their second week of inflows, adding $1.5 billion in the week ended Wednesday.
The analysis was based on EPFR data.
(Reporting by Julien Ponthus, editing by Karin Strohecker)