Macroscope | Alarm over China lockdowns and US inflation have investors preparing for the worst
- Fears of a policy mistake in the US or China that will cost the global economy dearly have reached fever pitch in the past few months
- Markets seem to have little faith that the Federal Reserve can rein in inflation or that China’s leaders can afford to ease draconian pandemic restrictions
To say the first four months of 2022 have been an unpleasant experience for traders and investors would be a gross understatement. The Bloomberg Global Aggregate Bond Index – a broad measure of government and corporate debt – has plunged 10.1 per cent, bringing its decline since its peak in January 2021 to 14.3 per cent, the sharpest fall in the history of the index.
The rout in bond markets is matched only by the pervasive pessimism over the outlook for growth. In Bank of America’s latest fund manager survey, published on April 12, the percentage of respondents anticipating a stronger economy fell to its lowest level since the creation of the index in 1994.
The decisions that Fed chairman Jerome Powell and President Xi Jinping make in the next several months will determine how severe the slowdown will be and whether the brutal sell-off in sovereign bonds spreads to the closely watched corporate debt market, triggering a more severe financial shock.
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