Hiking

Global rate hike cycle will end in early 2023, says JPMorgan’s Kolanovic

(Bloomberg) – JPMorgan Chase & Co.’s Marko Kolanovic joins Wall Street strategists who believe the most aggressive cycle of interest rate hikes in decades by global central banks is coming to an end.

Bloomberg’s Most Read

A change in tone from the European Central Bank, easing fiscal tensions in the UK and a slower pace of interest rate hikes in Canada and Australia are bolstering optimism about the end of the cycle. global crunch in early 2023, according to JPMorgan’s chief global markets strategist and his team wrote in a note to clients. U.S. monetary policymakers are likely to raise rates by 50 basis points in December and pause after another 25 basis points hike in the first quarter of next year, strategists said.

Until recently, Kolanovic was one of Wall Street’s most vocal bulls despite the S&P 500 index falling 19% this year. Earlier this month he became more skeptical, cutting risk allocations in JPMorgan’s model portfolio.

Slowing the pace of tightening does not mean global central bankers will relax their fight against inflation, strategists warn. Consumer price pressures must continue to diminish for this scenario to materialize, they wrote, although some of it is already apparent. The ECB signaled that it was making progress in the fight against record inflation by doubling its key rate. And Mary Daly, who heads the San Francisco Federal Reserve, said earlier this month that the central bank should start planning to scale back its rate hikes.

“If our predictions are correct, the most synchronized and aggressive global hiking cycle in 40 years will end early next year,” JPMorgan strategists, including Kolanovic, wrote in the note. “Huge support for risky markets came on signals that the pace of central bank tightening has peaked and any further rate hikes from here are likely to be smaller in magnitude.”

The Fed is expected to raise interest rates by 75 basis points for the fourth straight time when its meeting ends Nov. 2. Investors will carefully analyze Chairman Jerome Powell’s comments for guidance on future moves. The outlook for upcoming meetings is less certain, with traders seeing a drawdown between 75 and 50 basis points in December.

Kolanovic’s comments echo those of Morgan Stanley’s chief U.S. equity strategist, Michael Wilson. Indicators like the curve inversion between 10-year and three-month Treasury yields “support an early Fed pivot,” wrote Wilson, who until recently was a well-known bear.

The comment from Wilson, who was ranked top portfolio strategist in the latest survey of institutional investors, comes as strategists at Goldman Sachs Group Inc. said the potential slowdown in the pace of rate hikes coupled with light positioning investors and anticipation of a strong fourth-quarter seasonality behind an 8.9% two-week rebound in the S&P 500.

Read: Morgan Stanley’s Wilson says the end of Fed tightening is near (1)

Further gains could be on the way if policymakers become dovish when they announce their interest rate decision on Wednesday, according to estimates from JPMorgan’s trading desk. The S&P 500 could jump at least 10% in one day if the central bank raises interest rates half a percentage point slower than expected, according to the bank’s trade team, including Andrew Tyler .

Read: JPMorgan Trading Desk says Fed Dovish could spark 10% S&P rally

The S&P 500 fell 0.7% on Monday, narrowing its October lead, as big tech stocks tumble and bond yields climb.

–With help from Farah Elbahrawy and Lu Wang.

(Adds Kolanovic’s context to third paragraph.)

Bloomberg Businessweek’s Most Read

©2022 Bloomberg LP