Premature meeting? It’s too early to talk about a ‘hardline spike’ from the central bank, says a strategist

According to Jean-Paul Jaegers, head of asset allocation at barclays Wealth and Investments.

Major central banks around the world have been tightening monetary policy and raising interest rates in a bid to contain runaway inflation in recent months.

However, some stock markets staged a mild relief rally last week with the hope that the substantial rate hikes already implemented will mark the peak of the authorities’ aggressive tightening, as they walk a tightrope between containing inflation and a backdrop of slowing growth in many major economies.

Asked if the market had a “dangerous concern about maximum hawkishness,” or when central banks pause raising rates, Jaegers said: “Yes, it probably is. In fact, reading the economic data recently, I think it’s probably too early. .”

European markets were mixed on Monday Y stock futures in united states entered cautiously positive territory as investors braced for a rush of corporate earnings and awaited the Fed’s monetary policy decision on Wednesday.

However, Jaegers predicted that it may be months before central banks feel comfortable enough with the path of inflation to take their foot off the pedal of monetary policy tightening.

“We see now, as investors, talking for a long time about the stagflation scenario, so activity is slowing down and inflation is actually quite sticky. We see inflation is still quite stubborn and more entrenched in some elements,” he told CNBC. “Squawk Box Europe” on Monday.

“We think they [central bankers] It will take some time for the inflate to wear off and they feel comfortable letting their foot off the pedal… that will take quite a few months when they get comfortable enough with the inflate.”

For financial markets, however, that eventual turnaround may provide an opportunity, he suggested.

“Especially what we’ve seen with the equity markets, and particularly the fixed income and credit markets so far this year, the drawdowns have been quite significant, so I think there will be some relief for investors if they believe the Inflation has come down — to a certain extent,” Jaegers said.

the european central bank became the latest to start its tightening cycle, surprising markets on Thursday with a higher-than-expected increase of 50 basis points to interest rates, with inflation in the euro zone at a record 8.6%.

However, the continent faces multiple external shocks weighing on growth, notably the war in Ukraine and concerns over energy supply, along with renewed political turmoil in Italy.

“Europe’s economic environment has been deteriorating quite a bit and then also the clouds with Italy and a war on their doorstep makes it a very difficult picture for Europe,” Jaegers said.

“We actually think that Europe is headed for a recession and the ECB will probably find it very difficult to raise policy rates enough in the face of slowing economic growth.”

the US Federal Reserve It is expected that this week he will opt for a second successive hike of 75 basis pointswith inflation at 9.1%. However, PMI readings and US employment figures last week also indicated a slowdown in economic activity.

Jaegers also raised concerns about recession risks in the US, as interest rates, which started the year at 0-0.25%, are now expected to reach 3.5% by the end of the cycle, along with a very strong dollar and other tighter financial conditions. .

“So we’ve become more cautious on these assets in recent weeks and more comfortable with owning more duration risk, thus more government bonds, in client portfolios. We think from here it’s very hard for long-term interest rates to really go up, and that accounts for Europe too,” Jaegers said.

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