ER
HSBC Asset Management warns that a potential recession in the US could occur this year. A recession is expected to occur in the fourth quarter of 2023. Meanwhile, Europe is expected to catch up with contraction and recession in 2024.
Quoting CNBC, Joseph Little, Head of Global Strategy at HSBC Asset Management, said several states in the US are experiencing economic conditions that remain resilient, but the balance of risks has a high potential for a recession.
“The potential for a recession will occur in many countries. Europe lagged behind the US but general macroeconomic data remained in line. We are already in a recession, judging from the small profits, to the increasing cases of corporate defaults,” said Little.
“The good thing is that we expect high inflation to move moderately and relatively quickly. That will create opportunities for policy makers to cut interest rates,” he continued.
Despite the hawkish tone by the Fed, HSBC Asset Management expects the Fed to cut interest rates before the end of 2023, followed by the European Central Bank and Bank of England next year.
The Fed halted its monetary tightening cycle at its June meeting, with a target range of interest rates between 5 percent and 5.25 percent. But the Fed signaled there could be two further hikes this year.
Little acknowledged that the US Federal Reserve would not be able to cut interest rates if inflation remained well above target. Therefore he hopes the recession does not come too early, and cause disinflation.
“The coming recession scenario is more like the early 1990s recession, with our main scenario being a 1-2% decline in GDP,” Little said.
Little assesses that the recession that will occur in the US will cause difficult market prospects and volatility in the market for two reasons. First, there was a rapid tightening of financial conditions which led to a reduction in the credit cycle. Second, the market is less affected by the global pessimistic outlook.
“We think that market news sentiment over the next six months will be difficult for the market to digest. We take a careful holistic view of risk and cycles in portfolios. Interest rate exposure is attractive, especially the Treasury curve. In terms of credit, we are selective and focus on higher quality investment grade loans than speculative investment grade loans. We are also careful about the stock market,” Little concluded. [kompas.com/photo special]
