Global equity markets are expected to continue bleeding money as more heavy selling continues this summer as central banks around the world hike interest rates to try to fight spiraling inflation.
Brunello Rosa, CEO and head of research at financial advisory firm Rosa & Roubini, believes central banks around the world will continue to tighten monetary policy as markets continue to turn lower, CNBC reported.
Rosa said: “Now is the time for a reassessment of economic fundamentals around the world in terms of growth. It’s difficult for markets to be fully optimistic when inflation is rising, growth is slowing and interest rates are rising rapidly around the world.”
Last Thursday, the Dow Jones Industrial Average plunged more than 1,000 points while the Nasdaq Composite fell almost 5%. That 5% drop erased all gains from a short-lived rally the previous day when the US Federal Reserve announced it would be raising interest rates. The short-lived rally was spurred by investor optimism that the Federal Reserve had not made a major rate hike, but that optimism quickly gave way to fears of smaller rate hikes in the coming months.
Rosa noted that investors were initially optimistic that the news that a 75 basis point hike was off the table, but the fact that there is a strong possibility of multiple 50 basis point hikes over the next few months is scaring investors have.
Rosa said: “It is clear that they all [central banks] speak harshly at this stage. But the reality is that many tightenings will ultimately result in economic contraction.”
He also pointed out that most European governments and the US are naïve to continue to claim that economic contraction is avoidable.
He said: “There is a wide unawareness in the eurozone and in the US that there will actually be some kind of contraction in economic activity.”
Rosa said he expects Russia’s invasion of Ukraine to last much longer than many investors expect, further exacerbating ongoing supply chain disruptions and inflation while fueling the fire of rising interest rates.
Stoxx 600, a pan-European market index, fell 1% on Friday morning after Wall Street sold off on Thursday. The Stoxx 600 is down more than 11% so far this year. In Asia, Hong Kong’s HangSeng index fell 3.81% and in mainland China, the Shanghai Composite fell 2.16%, while the Shenzhen Component lost 2.14% of its value.
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