Are you buying the dip that keeps on dipping? If your BlackRock, then the answer is no!
In a recent comment, the world’s biggest asset manager declared that buying the dip was of no interest to them due to the high risk of overtightening interest rates and increased bond yields. Assets such as stocks and crypto are at risk of further losses due to interest rate hikes, whilst U.S. Treasury bonds will continue to offer a secure and stable yield.
Many thought inflation in the U.S. had already peaked. Still, we were surprised last Friday with higher than expected CPI figures from the U.S. With inflation now at 8.6% and both President Biden and Treasury Secretary Yellen declaring the FED’s only job is to rein in rising inflation, the path looks set for further interest rate hikes starting this Wednesday.
What does this all mean? Simply holding USD or Bonds can offer a more secure investment than most other assets during a recession which for the U.S. is estimated to be a 50/50 chance by the year’s end.
As inflation is so hot right now, a 75bps move could come as early as this week from the FED. A 50bps is almost guaranteed and priced in, but a surprise higher rate would allow USD to rally against its rivals.
For the U.K. a recession could be coming as early as September after posting -0.3% GDP yesterday. The Bank of England is set to hike interest rates this Thursday from 1.00% to 1.25%. A more considerable 50bps hike is also on the cards, which could strengthen GBP in the short term but would speed up the economy’s contraction into a recession. The Organisation for Economic Co-operation and Development (OECD) has forecasted that the U.K. will have the weakest economy in the G7 next year. Yikes.
Week Ahead
This week focuses on the USA and the U.K. rate hikes and inflation data. ECB’s President Lagarde speech may hint at her plans for the next rate hike.
Monday
GBP Gross Domestic Product (MoM)(Apr)
Tuesday
GBP Claimant Count Change(May)
USD Producer Price Index ex Food & Energy (YoY)(May)
Wednesday
USD Retail Sales (MoM)(May)
ECB’s President Lagarde speech
Fed Interest Rate Decision
Thursday
GBP BoE Interest Rate Decision
Friday
USD Fed’s Chair Powell speech