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: Peak everything — growth, inflation and COVID — may soon mean calmer markets ahead, economist says


For better or worse, we’re at the summit — of everything.

Andy Cates, senior economist at Haver Analytics, in a presentation said it’s looking like the world is simultaneously reaching peak COVID, peak growth and peak inflation.

“Many of the macroeconomic drivers of asset prices in recent times are peaking and either already moving into reverse or about to move into reverse,” he said.

The first part, COVID, is obviously welcome. He pointed to a big drop in global COVID deaths relative to cases, and the declines in South African cases and U.K. ventilations. Both countries were among the first to be hit by the omicron variant of coronavirus.

The growth peak is less welcome. Most major economies have regained their pre-COVID GDP level. But expectations for GDP growth are easing, outside of China, where growth already has slowed and corporate profit growth is set to slow.

“A lot of the heavy lifting in the early recovery phase in the pandemic era has already unfolded. And it won’t therefore be as easy in the next few months for economic growth to surpass the pace that we’ve seen in that phase,” he said.

On inflation, he noted that global consumer goods price were finally slowing. There’s still excess capacity in China and Europe, and supply chain pressures may have peaked. Fiscal policy is getting tighter, and interest-rate forecasts are being lifted.

While yields TMUBMUSD10Y, 1.912% seem out of kilter with global growth and inflation fundamentals, they may come back into balance soon. “The gap between these two series has been breached a little in recent weeks. And in my view, it won’t take too much more from a slowing world economy, weaker commodity prices and higher interest rates to completely bridge that gap in the period ahead,” he said.

“If inflation shortly peaks too, which would be my view, and then falls quite quickly, volatility too shortly peak, and calmer waters should reappear,” Cates said.

Through Thursday, the S&P 500 SPX, -2.44% has dropped 6% from its January highs, while the CBOE volatility index VIX, +4.72% has climbed 47% this year.

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