A summary of institutions' views on financial markets on May 25

On May 25, the institutions summarized their views on the stock market, commodities, foreign exchange, economic prospects of various countries and the outlook of central bank policies:



1. ASB Bank of New Zealand looks forward to the New Zealand Federal Reserve interest rate decision: raise interest rates by 50 basis points;

Our bank expects the Reserve Bank of New Zealand to raise interest rates by 50 basis points, raising the official cash rate (OCR) to 2%. The market has almost fully priced in the 50 basis point rate hike expectations, but there is wide divergence on the future rate path and forward guidance. The Reserve Bank of New Zealand is expected to acknowledge that the economy faces recession risks and that inflation remains the top priority. Expect a more cautious, more data-reliant approach to the July resolution, with the pace of rate hikes returning to the usual 25bps

2. ANZ predicts that the Reserve Bank of New Zealand will raise interest rates by 50 basis points on Wednesday;

The Reserve Bank of New Zealand is expected to raise the official cash rate (OCR) by 50 basis points to 2% on Wednesday. Continue to expect the RBNZ to raise rates at a more usual pace of 25 basis points from July onwards as there is growing evidence that demand is cooling. However, if there is more unexpected upside in inflation, the bar for a 50-point hike in July will be low

3. Goldman Sachs and Bank of America strategists expect the stock market to fall further before the Fed's policy shift;

Strategists at Goldman Sachs Group Inc. and Bank of America Corp. said U.S. stocks could fall further before the Federal Reserve signals an end to monetary policy tightening. The Fed has offered no help to risk assets and appears to show no sign of stepping in to the stock market. Indicators of market stress, such as credit spreads and S&P 500 futures liquidity, are now at levels seen during previous Fed interventions. The market will continue to test the Fed put, but the Fed will not start to panic until the market panics further. And once the Fed signals an end to tightening, the stock market will bottom; but the Fed may not send that signal until a recession is already very evident, and if the recession is not evident, the Fed is unlikely to turn to accommodative Monetary Policy

4. JPMorgan Chase: Maintain the price forecast of Brent crude oil at $114/barrel in the second quarter of 2022, the price may soar to above $120/barrel during the period; the average price of Brent oil in 2022 is expected to be $104/barrel

5. The agency believes that the price of natural gas will rise;

Natural resource investment firm Goehring & Rozencwajg senior analyst: Natural gas prices in Asia and Europe are $35/MMBtu, compared to $8.20/MMBtu in the United States, given the fundamentals of the U.S. natural gas market have developed, we believe that, Over the next 6 months, prices will surge and converge with international prices

6. Financial website Kitco: The price of gold is expected to challenge $1850 or even $1900;

Financial website Kitco analyst Jonathan: As the dollar weakens, gold has found support at $1,850 an ounce, and it is expected to test $1,885 an ounce or even $1,900 an ounce in the future. The dollar index DXY may continue to fall back to the lower edge of the ascending channel (about 100.63). Notably, the macro backdrop remains favorable for sudden volatility across all asset classes

7. WisdomTree analysts are bullish on copper prices;

WisdomTree analyst Nitesh Shah: The long-term outlook for copper remains strong due to lower investment in new mines and demand from the transition to green energy. Recently, however, central banks have remained hawkish on curbing inflation, which would also kill the economy. Further price pressure expected in coming months

8. Jefferies: USD/JPY gains may be blocked;

Brad Bechtel, strategist at Jefferies: There has been a clear shift in client sentiment towards USD/JPY, with many now expecting the Bank of Japan to soon be forced to act on yield curve control, which will prevent further gains in the pair. The mentality of many investors who had expected the exchange rate to rise to 140 or 150 has changed

9. David Meger, director of metals trading at High Ridge Futures: A weaker U.S. dollar index, coupled with a retreat in U.S. Treasury yields from recent highs, provides a supportive environment for gold

10. Morgan Stanley: The rebalancing mode of positions at the end of the month is conducive to the rebound of the dollar;

Morgan Stanley FX analysts John Kalamaras, James Lord and Matthew Hornbach use a model that measures the absolute performance of the stock market to generate month-end exchange rate signals. Most local stocks were weaker in May, suggesting the dollar should strengthen in the final week. The model expects USD to outperform in May 2022: Our signals suggest USD should strengthen against most G-10 currencies by the end of the month, with the exception of GBP, JPY and NOK. The dollar's correlation with U.S. equities has been negative recently, so rebalancing flows into U.S. equities could unexpectedly cause the dollar to fall. Favorable month-end position rebalancing flows could help dollar rally in last week of May

11. Bank of America Merrill Lynch: The U.S. economy faces the risk of recession or stagflation. It is recommended to sell 10-year TIPS and hold 30-year TIPS;

Fed rate hikes run the risk of tipping the economy into recession or stagflation, so I recommend selling 10-year inflation-protected bonds (TIPS) and holding longer-dated TIPS. There are growing concerns about a period of weak growth and high inflation in the U.S. economy, which is expected to lead to higher breakeven inflation and lower real interest rates, especially long-term rates. As the growth rate slows and the unemployment rate rises, the Fed can stop tightening policy. It is expected that the Fed will stop tightening policy in May 2023. The core personal consumption expenditure price index in the second quarter is expected to record 3.4%. Economic growth to slow to 0.4% by the end of next year

12. JPMorgan Chase: Brazil's inflation is expected to be 8.7% in 2022, compared to 9.1% previously; inflation is expected to be 4.5% in 2023, compared to 4.2% previously

13. Bridgewater Fund's chief investment officer warned: the market is still "too optimistic";

① Greg Jensen, co-chief investment officer at Bridgewater, the world's largest hedge fund, said the market remains "overly optimistic" and investors have not yet adjusted to a period of "long-term changes" of rising inflation and slowing growth. Asset prices will take a hit as the Fed raises interest rates and shrinks its balance sheet in response to the highest inflation in decades;
The stock market is already under pressure, with the S&P 500 down about 18% from its peak, while the yield on the benchmark 10-year U.S. Treasury note jumped above 3% at one point this month, though it is now back at 2.8%, Jensen said. Investors remain optimistic, and they are effectively bracing for a soft landing, the belief that the Fed can bring down prices without triggering a recession. The market is pricing in a fairly smooth landing for the U.S. economy. So I think the market pricing is still too optimistic right now. This is a small change compared to the long-term changes we are actually experiencing;
③ Jensen also warned that investors should not expect the Fed to come to their rescue. Conversely, to control inflation, the Fed needs to tighten financial conditions, which will leave it powerless. The Fed wants asset prices to fall to a certain extent. Even if they fell more than expected, the Fed is weighing the impact of inflation. So the market is likely to continue to fall even more before the Fed actually comes to the rescue

14. Goldman Sachs: U.S. markets may fall further before the Fed signals monetary tightening;

① Goldman Sachs strategist Vickie Chang said that once the Fed signals an end to tightening, the U.S. market will bottom; the Fed may not send this signal until a recession is already evident. It may be that the market needs to be further convinced that the tightening of financial conditions is sufficient, that the Fed has completed its mission and has sent enough signals to tighten, and monetary policy has historically started to stop tightening about 3 months before the market bottomed, and about two after that. month to relax;
② Chang said the Fed is unlikely to turn to accommodative easing without a clear sign of a recession, but - as in late 2018 - clear signs that tightening risks are fading may be enough. In the past, whether or not activity bottomed out, such market corrections triggered by monetary policy tightening tended to bottom out when the Fed turned to easing, as investors bet that rate cuts would boost activity anyway, Goldman Sachs said.
③Chang said that using history as a guide, only the Fed itself will turn the most likely to end this decline caused by monetary policy tightening, thereby freeing the market from its recent lows (and stopping the decline), the market may need to see inflation decelerate signal, which our US experts do not expect until the second half of the year, so that the market can continue to moderate

15. Royal Bank of Canada: The UK’s energy windfall tax could cost the UK £100bn of investment;

RBC Europe said a windfall tax on UK utilities was "very short-sighted" and could jeopardise future billions of pounds in UK investment. If this windfall tax deters investors, the UK could lose £100bn of investment by 2030. And if an energy windfall tax is implemented, a large part of the UK government's energy security strategy would be "at risk" as investors' confidence in future investments would be reduced. Chancellor of the Exchequer Sunak has reportedly asked officials to review the windfall profits tax imposed on power generators and oil and gas companies. It's a response to record-high energy prices that have generated huge profits for generators but have seen household bills soar across the UK