Is the worst over? Market watchers remain cautious

This is even as Reserve Bank of India (RBI) Governor Shaktikanta Das said the latest data points on growth, inflation and currency volatility point to the worst for financial markets and that the global economy is behind us and US Fed Chairman Jerome Powell said, “the disinflationary process has begun.”

However, Powell signaled that interest rates would continue to rise and cuts were not in sight. India’s Das also said higher interest rates for a longer period seemed a distinct possibility in the future.

Here’s why many experts think global markets may not yet be able to beat inflation

Stock markets

– Angus Bell, managing director of Goldman Sachs Asset Management in London, told Bloomberg: “We are not yet in the environment where we can buy indiscriminately…For countries that have faced acute stress l last year, it’s not really like the macro environment has changed so drastically that all the problems they were facing have now totally evaporated.

– According to a note from JPMorgan analysts, including Jonny Goulden, on January 26, the main short-term reasons against the rally continuing at this time are its speed and magnitude. Based on his analysis of risk appetite for EM currencies, “some short-term caution is warranted.”

– Reflecting on volatility and uncertainty, Bloomberg cited the example of developments around Gautam Adani’s Adani Group following which the Indian market witnessed choppy trading. That, he said, contrasts sharply with a bumper start to 2023 for the asset class, with Morgan Stanley Investment Management saying the emerging markets decade has begun.

– Arvind Sanger, Geosphere Capital Management, said his problem with inflation data is not that it is not falling, but that it may not reach the levels the market is hoping for, which would mean that the Fed begins to cut interest. rate towards the end of the year. “That remains the big question,” he told CNBC-TV18.

–Badrinivas NC, Asia Pacific Market Treasurer at Citi Bank, said that looking ahead, core inflation is something that continues to remain sticky.

“I mentioned the continued strong growth momentum, I think overall MPC would like to keep their options open until you get more conviction on the path of inflation, especially inflation under underlying,” Badrinivas told CNBC-TV18.

– Aswath Damodaran, Professor – Finance, NYU Stern School of Business explained that the problem is that there is something driving up stock prices with no checks and balances on the other side.

“I would have a problem with the kind of hardcore optimism that drove the price higher. This is not a retail stock, so you can’t blame retail investors, but there is something that drives the price up without a meter on the other side… it’s troubling to me that the market lets the price go up so much for a company you look at and say that company you shouldn’t see such a price increase in a short period.

Food inflation

The United Nations food price index fell 0.8% in January, a 10th consecutive decline and the longest streak in data dating back to 1990. Prices fell 18% from the March record, when the Russian invasion of Ukraine disrupted crop flows. from the main supplier.

– Still, the UN gauge remains historically high and it’s taking some time for the changes to trickle down to what people pay for groceries. These prices have soared around the world due to high energy, transport and labor costs, deepening the cost of living crisis and increasing world hunger, the report adds. .

– A Sky News report claims that all the major drivers of global inflation – war, energy and post-Covid supply chains – are coalescing in food production, driving up the cost of feed, fuel and fertilizers. This makes higher grocery bills inevitable and has a disproportionate impact on the less well-off, for whom food represents a greater proportion of expenses.

American labor market

– Geosphere Capital’s Sanger noted that goods inflation has come down, even some of the housing inflation, but the big challenge for the Fed is to make sure labor inflation doesn’t show up stubborn.

– “That will prove to be the real question mark in this data, whether the Fed is going to have to engineer a bigger slowdown to get wage inflation under control, as that could remain one of the biggest issues for 23,” did he declare.

Reopening of China

– China’s rapid reopening after nearly three years of COVID-19 restrictions could provide a much-needed boost to global economic growth, but could also stoke inflation just as it has shown signs of receding, according to a CNN report.

The revival of the world’s second-largest economy – and its biggest consumer of raw materials – threatens to push up global prices for fuel, industrial metals and food this year, according to this report.

— Simply put, when demand is greater than supply, prices go up and vice versa when supply is greater than demand. This means that with the resumption of manufacturing in China, supply problems should ease. However, this may impact rough prices if Chinese demand increases simultaneously and this could lead to higher prices.

Meanwhile, Chinese banks are offering cheap consumer loans as President Xi Jinping has called for increased consumer demand.

(With text entries of agencies)