Worse still, a combination of both scenarios could play out: “If we get a combination of both decelerating growth and more tightening priced in the next six months, then the first half could indeed be quite nasty for risk assets,” Kettner said by email.
A lose-lose situation may be emerging for risk assets this year, according to HSBC strategists.
If economic growth rebounds in line or above expectations, this will open the door for “fairly aggressive” tightening from the U.S. Federal Reserve, HSBC strategists led by Max Kettner said in a note. On the other hand, even if supply chain issues dampen recovery–a scenario that HSBC sees as more probable - the Fed is unlikely to quickly change its strategy, resulting in “further deterioration of the growth-inflation trade-off.”
