The macroeconomic environment is rapidly deteriorating and could tip the US economy into recession amid tighter monetary policy from the Federal Reserve, BofA strategy leaders warn in their weekly note.
“A worsening ‘inflation shock’, a ‘rate shock’ which is only just beginning, a ‘recession shock’ which is coming”, summarizes the director of investments of the American bank, Michael Hartnett, adding that in this context, cash, volatility, commodities and cryptocurrencies could outperform bonds and equities.
Minutes from the Federal Reserve’s latest monetary policy meeting, released on Wednesday, show the U.S. central bank could begin shrinking its balance sheet as early as next month and plans to do so at a twice the rate faster than during the previous phase of “quantitative tightening”.
A clear majority of investors also expect the Fed to raise its key interest rate by half a point on May 4.
In terms of weekly flows, the BofA note, which relies on EPFR data, points out that equity funds from emerging countries recorded their largest inflows for ten weeks, at $5.3 billion, over the week to Wednesday and those specializing in emerging debt attracted $2.2 billion over the same period, their best week since September.
European equity funds, on the other hand, posted an eighth consecutive week of net outflows, at $1.6 billion, while US equity funds benefited from a second week of net inflows (+1.5 billion).
(Report Julien Ponthus, French version Marc Angrand, edited by Jean-Michel Bélot)