The most recent notes out of BofA says that we at the moment are within the transition interval from the 2022 bear narrative, that was encapsulated by “inflation shock, charges shock, recession shock”, and shifting on to the 2023 bull narrative, which is “peak CPI, peak Fed, peak yields, and peak US greenback”.
In different phrases, we’re heading into the sundown days of the tightening cycle by main central banks – not less than when it comes to what’s being priced in. That is a large endorsement for danger trades, not less than on paper.
However I feel a query that must be addressed is what occurs if inflation would not simply peak and fall, however as an alternative it peaks and simply plateaus at a excessive stage? The market’s urge for food for greed hinges rather a lot on the aid that inflation is not getting any worse however is it sufficient to maintain a extra optimistic outlook if we do not see a cloth fall in shopper costs again in the direction of 2%?
