Market Expectations for Inflation Not Corresponding to its Upside Risk
Key takeaways
- StoneX’s Kathryn Rooney Vera remarks that inflation expectations are too low
- High levels of complacency in the markets imply inherent risks
- Rooney Vera says conditions may support investors protecting gains
StoneX’s Chief Market Strategist Kathryn Rooney Vera joined CNBC for coverage on the latest market trends, offering insight into the possible risks from a surge above official predictions, but perhaps opportunities as well.
Rooney Vera explained that, as markets have powered higher, “inflation expectations are too low and do not correspond with the upside risk”. This is especially highlighted when considering rising geopolitical risks plus supply and demand issues that will probably push prices higher in markets such as oil.
Rooney Vera points out that sentiment was already restrictive providing second quarter growth of 2.8% well outpaced the 1.8% consensus. Add to that a third quarter growth forecast of 3% and it adds to potential risks of complacency.
She continues “When you see the vectors drop, that makes options protection and protection hedges cheap”. She suggests those that could make an opportune time to offset some of this building risk , especially with such a high level of complacency from the markets.
Rooney Vera goes on to mention important events such as the upcoming US elections and its effect on the S&P 500. She also mentions the utilities and industrial estate sectors as ‘second derivatives’ to AI: “If we continue to move higher in the AI trade, you’d want to play the second derivative trade” she says.
Lastly, after the latest jobs report, Rooney Vera says the Fed’s reaction is critical, but the volatility in the markets is due to overdependency on data. The big question is what will happen in November . She does not expect another move like the last Fed cut.
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See the full interview here.
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