Halister News

(Bloomberg) -- Stay short EM as well as assets and currencies exposed to EM, such as AUD, as Fed tightening may not be properly understood, analysts including Jeff Greenberg write in client note yday.

• Also recommend hedges for long DM equities, including long EUR/SEK and favor longer duration US IG bonds vs HY since Fed policy may pressure firms with weaker credit fundamentals
• While Fed only lifted rates by 25bps in Dec., calculations show financial markets responded as if it had done more like 273bps of tightening, but only a 134bps rebound as the Fed turned more dovish
• Next increase may not cause the same degree of tightening as the first, but the distance the Fed has to travel is shorter than in past cycles so the central bank may be further into its tightening cycle than is perceived
• Estimate just 200bp-250bp of rate rises are enough to get the Fed through a full cycle
• The Fed runs the risk of an unintended cooling of the economy with fewer-than-intended hikes; obviously a risk for equities and a driver for flatter curves in fixed income
• NOTE: The Fed must appreciate the danger that higher interest rates could pose for the U.S. economy, Krishna Memani, CIO of OppenheimerFunds said yday