September 1, 2022
The Market Is Underestimating Fed Risk Even After Rout, Bank of America Says
A late-summer lull is nowhere to be seen in the stock market, with traders recalibrating their expectations after a blunt warning from the Federal Reserve chief in Jackson Hole. Most likely, they have a long ways to go.
So say derivatives strategists at Bank of America Corp., who point to a disparity in price-swing expectations in equities and other asset classes. The S&P 500’s rebound in the two months through mid-August sent the Cboe Volatility Index, or VIX, into a dormant zone next to similar gauges in the rate or currency markets. The rude awakening that Jerome Powell’s speech has been to US shares means that investors need to catch up in pricing policy risk.
European Bonds Extend Losses With Specter of Larger Hike Looming
European bonds fell as markets digested the possibility that central banks will need to ramp up the scale of rate hikes to rein in rampant inflation.
Italian bonds led losses in the region on Thursday, sending the 10-year yield above 4% for the first time since June 15. German debt also slipped, leaving the two-year rate within a whisker of its June peak. Traders are now betting on 241 basis points of hikes by July next year, double what they were expecting just a month ago.
Outspoken China Analyst to Join Hedge Fund as Chief Economist
Hong Hao, the former China strategist at Bocom International Holdings Co. who resigned earlier this year following bearish reports on the country, will be joining a Shanghai-based hedge fund as its chief economist in Hong Kong.
Hong said he is opening GROW Investment Group’s first office in Hong Kong and will help provide strategies for wealthy investors with their offshore asset allocations. Hong, who will also serve as research chief, starts his new role on Monday.
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