According to a report by HSBC Asset Management, global markets are experiencing a “new paradigm” as the world order becomes fragmented. As recession risks loom, bonds are regaining prominence in investment portfolios, the report added. The analysis highlights that tight monetary and credit conditions are creating concerns for economies worldwide, which increases the likelihood of an adverse growth shock next year. The markets may not be adequately prepared for this impending risk.
HSBC Asset Management predicts that U.S. inflation will gradually decline and reach the Federal Reserve’s target of 2% by late 2024 or early 2025. Similarly, other major economies are expected to witness a drop in their headline consumer price index figures, aligning with their respective central banks’ targets throughout the next year.
The report anticipates that the Federal Reserve will start reducing interest rates in the second quarter of 2024, surpassing the 100 basis points already priced in by the markets for the rest of the year. Additionally, the European Central Bank is likely to follow suit, while the Bank of England is expected to initiate a rate-cutting cycle but remain behind its counterparts.
Despite these expectations, the report emphasizes that challenges lie ahead. It suggests that further disinflation may result in rising unemployment rates, diminished consumer savings, tighter credit conditions, and weak labor markets, which collectively could point towards a potential recession in 2024, warns Joseph Little, Global Chief Strategist at HSBC Asset Management.
Source (CNBC)
