• Clifford Bennett, Chief Economist at ACY


• 16.05.2022 03:15 pm
undisclosed

'Hedge your portfolio' has been our strong call all of this year and it certainly has been serving us all well.

This week, looks to be another good opportunity to conduct the same kind of portfolio protection. So as to set yourself up for that all important advantage window when stocks eventually bottom.

The Euro is starting to see headlines around risk of parity to the US dollar? Something we forecast several months ago at 1.14, when we said the target for the Euro was below parity at around .9700. This remains my forecast.

Goldman Sachs former CEO Blankfein, has joined our ACY Securities forecast of there being a high probability and certainly a strong risk of recession in the USA this year. Many others had spotted recession risk out in 2024, but we have been aggressive from the outset in our forecast for a potential USA recession this year.

Goldman Sachs just down-graded their US GDP forecasts for this year and next.

What GS fails to have a handle on as yet, like most of the major institutions, is that there is a very real risk, even likelihood of a 'Triple Northern Hemisphere Recession' across the USA, Europe and China simultaneously and virtually immediately.

This is why equity markets, in my view, have only just begun to downwardly price in such suppressed economic activity. Severe economic slow down in the world’s three largest economies simultaneously, will have substantial ripple effects around the globe.

In the eventual panic, investors will increasingly flock to the more traditional safe-havens of the US dollar and Gold. These markets have tremendous upside potential.

Expect continued US dollar strength. Especially against the Euro and the Australian dollar. The war and sanction blowback savaged Euro, temporarily supported by quiet ECB intervention, and the Australian dollar which had been priced for never ending commodity price nirvana can fall sharply. The Federal Reserve will continue hiking aggressively and this will pressure the Australian dollar further down the currency rating ladder.

My forecast for the AUD remains since last year, 65 cents in 2022, and risk as low as 58 cents in 2023.

Australia will also likely enter recession this year. Though the rest of non-China Asia should hold reasonably firm.

The only saving grace for stocks this week may be Jerome Powell speaking on Tuesday. Friday saw further confirmation of GFC style panic among US Consumers. Consumer Sentiment plunging to an 11 year low of 59.1. For equity markets, this week could see a slightly more cautious Federal Chairman Jerome Powell. The fast ramping up of recession risk, even before rate hikes have gained traction, is a sobering development indeed. The Chair may well suggest rates need to rise quickly for the moment, but that also significant and increased attention may be addressed toward the prospect of consumers and businesses being unable to carry the simultaneous assault of both extreme inflation and higher mortgage rates.

75 point hikes are likely out of the picture, but another two to three 50 points hikes remain likely before any pause.

USA recession here we come. Regardless of Fed action, aggressive or mild, expect lower stock market values to result overall.

Even Australia will not be immune to the global slow down and continuing stock market sell-off.