(Bloomberg) — Some investors have a message for anyone looking to bet big ahead of one of the Federal Reserve’s most important policy meetings this year: don’t, or risk being burned. on fire.
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Stephen Miller, an investment consultant and market veteran for four decades at GSFM, a unit of Canada’s CI Financial Corp in Sydney, said. “I would also close long dollar long positions – the next 24 hours are highly uncertain as the market has turned such pessimistic in the meeting.”
Miller’s caution is reflected on trading desks from Woori Bank in Seoul to BNP Paribas Asset Management in Hong Kong as investors brace for another massive rate hike from the Federal Reserve. Federal Reserve to cool rising price pressures. Markets are pricing in a 75 basis point increase with a chance of a full percentage point rally – a risk that will only add to recession fears.
The Fed’s decision comes in a week full of action in terms of policy, with the Bank of Japan and the Bank of England both scheduled to discuss interest rates on Thursday. The reviews could spur a major shift in global markets as traders trying to figure out where to get a handle on borrowing costs are in the wake of recent overshoots from Riksbank and the Bank of Canada.
Anxiety is rife across almost every asset class: volatility is expected in US stocks near levels last seen in mid-July, while prices on Treasuries have surged to a one-month high . Overnight implied volatility has also increased across all major currency pairs, underscoring uncertainty over how the forex markets will react to the Fed’s decision.
And, it’s not just about the size of the rate hike. The key message for investors will probably be based more on the Fed’s projections of where policy rates will peak.
In the face of this uncertainty, Zhikai Chen, BNP’s head of global and Asian emerging market securities in Hong Kong, is hoarding cash to protect his portfolio.
“We’ve had an average of 3% plus cash in our portfolio over the past 10 years – we’ve had an average of 3% plus cash in our portfolio over the past 10 years,” said Chen, who helps oversee 500 billion euros ($498 billion) at the wealth management firm. I will join this meeting with about 7.5%. The lack of confidence is “certainly understandable” as investors await news from Fed Chairman Jerome Powell.
Geopolitical risks are also complicating the picture, after Russian President Vladimir Putin announced “partial mobilization”, calling for 300,000 reservists in a major escalation of the invasion of Ukraine. The euro fell to a two-week low.
Euro increases losses as Putin’s war threats add to Fed anxiety
‘Don’t try anything’
Others like Steen Jakobsen, chief investment officer at Saxo Bank A/S, plan to weather any market turmoil by holding on to existing positions. Meanwhile, leveraged investors are placing short-term bets on two-year US Treasury contracts to their biggest drop since June, data from the Commodity Futures Trading Commission shows.
“We don’t do anything different at 75 or 100 or even 25,” Jakobsen said. “What we need to balance over time is which part of the economy needs capital and that won’t be risk-based. single event risk like the FOMC.”
By contrast, macro funds have been building short positions in the US stock market since the latest US inflation report, according to an analysis by Nomura Holdings Inc.
For Woori Bank’s Min Gyeong-won, entering any solid position – existing or new – could result in a loss. His advice: sit down and analyze the Fed’s message before taking any bold action.
“Don’t try anything before the meeting,” says Min, an economist in Seoul. “Go to bed early, wake up early and review Chairman Powell’s speech, and go get your morning cup of coffee.”
(Updates on the development of Ukraine in the ninth paragraph)
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