Not in my view. There is almost no harm done yet to credit or commodity prices. This reflects an inflation outlook that remains strong when it needs to be squashed for the Fed to stop tightening.
I am encouraged in this view by the ongoing bullishness of Wall St. JPM:
Recent bearishness in equities is overdone, and out of line with activity momentum, easing bottlenecks, and what we expect to be a strong earnings season. While some are concerned that rising input prices will eat into margins, we expect margins to remain resilient thanks to strong activity and prices outpacing wage inflation. We are also bullish on Asia equities, with China policy expected to become more growth supportive. Ex-China we are OW Financials as earnings are leveraged to short rates and growth, and the selloff on margin concerns appears excessive. US bond positioning has gotten more bearish ahead of the FOMC meeting and the gap to fair value in Treasuries has reduced with recent moves. In the medium term, we stay UW 10Y USTs on expectations real rates will rise. We revised our YE’22 Bund target up to +30bp (from +10bp) and took profit on 5y Germany vs US on the back of our call for earlier ECB liftoff in Mar’23. EM Credit has lagged, especially in HY; EM sovereigns are cheap vs US credit, and CEMBI HY is cheap vs US HY in our view. In FX, the dollar looks lackluster, not benefiting from either rising real rates or the equity pullback, and facing headwinds from positioning, broadening CB hawkishness, and stabilizing global growth expectations. A potential disruption in exports from escalating Russia/Ukraine tensions presents upside Commodity price risks. Natural gas, oil, aluminum, PGMs, wheat and corn are most exposed, and a repeat of the December spike in natural gas is possible if exports to Europe are disrupted.
