The International Monetary Fund has warned of more market sales as central banks try to fight higher inflation and ease pandemic stimulus measures.
Market players have started the year on an optimistic footing, predicting some economic momentum amid easing restrictions on Covid-19, which would likely boost stocks. However, since Russia’s unprovoked invasion of Ukraine on February 24, this outlook has worsened – with additional shocks in the supply chain and rising energy prices.
“There is definitely a risk of new sales,” Tobias Adrian, director of money and capital markets at the IMF, told CNBC.
“The expected consequences of the monetary tightening are the tightening of financial conditions to slow down economic activity and I would not be surprised if we see a certain readjustment of asset valuations in the future and which could be in both stock and corporate markets. bond markets and sovereign markets, ”he added.
The Fund’s warning comes at a time of great uncertainty for some of the major central banks.
The US Federal Reserve expects interest rates to rise another sixfold in 2022, while the European Central Bank confirmed last week that it is closing its third-quarter asset purchase program.
However, this monetary tightening could be accelerated if inflation remains high, which could affect market movements. The euro area, for example, hit another record high in inflation last month, at 7.5% on an annual basis; and the United States reported the highest consumer price figures since 1981.
“There is a growing risk that inflation expectations will drift away from the central bank’s inflation targets, leading to a more aggressive tightening response from policymakers,” the IMF said in its latest World Economic Outlook report on Tuesday.
In its latest economic assessment, the IMF said high inflation would last longer than previously expected. He also estimated that the inflation rate will reach 7.7% in the United States and 5.3% in the euro area this year.