“It’s going to be another hawkish message from the Fed,” said Michael Contopoulos, director of fixed income at Richard Bernstein Advisors. “And the one quadrant you don’t want to be in if you are an equity investor is one where there’s decelerating earning growth and tightening monetary conditions, which is where we are going.”
Yields and Dollar
One of the strongest signals out of the survey is that respondents see further pain ahead for the roughly $24 trillion US Treasury market, which is already on track for its steepest annual loss since at least the early 1970s.
The majority of respondents, 70%, said they expect 10-year Treasury yields to be higher in a month than they are now, compared to 30% that expect them to fall.
This benchmark for global borrowing has already more than doubled this year, raising borrowing costs for everyone from companies to home-buyers.
One of the biggest winners from higher yields could be the dollar, which has soared this year as the Fed’s tightening campaign boosted interest-rate differentials in the greenback’s favor.
“That does keep the US dollar supported,” Charu Chanana of Saxo Capital Markets said in a Bloomberg TV interview.
Among MLIV Pulse respondents, 61% said there’s more scope for greenback gains, signaling it’s best to maintain or increase long positions.
The dollar gained against all the major currencies on Monday with Bloomberg Dollar Spot Index up as much as 0.5%. The greenback’s strength is rippling through global financial markets, putting pressure on US trading partners including Canada and Japan.
Fed Chair Jerome Powell said this month that officials “need to act now, forthrightly, strongly” to curb inflation. In the eyes of survey respondents, that likely means little deviation from this year’s big investment trends.
“The Fed is fighting an expectation battle,” Joe Davis, global chief economist at Vanguard Group Inc., wrote in a research note. “It is a tradeoff of impacts of higher policy rates, but they would rather tamp down inflation in the current environment, even at the expense of growth and the labor market.”
--With assistance from Felice Maranz and Tomoko Yamazaki.
This article was provided by Bloomberg News.