According to Gabriella Santos, global market strategist at JP Morgan, the slowdown will not impact the US economy despite the ongoing uncertainty in the markets and heightened risks.
The US has been strengthened by strong momentum and balance sheets, it told CNBC on Wednesday, pointing to recent retail sales data assuring that the trajectory of the economy is improving.
“As a base case, the economy will continue to grow above the trend, eventually these risks will be priced in, and riskier assets recover,” Santos said.
But he pointed out that JPMorgan is looking at three primary risks: geopolitical conflict and its impact on commodities, China’s COVID-19 lockdown and the Federal Reserve’s rate hike.
Russia’s war on Ukraine crippled Western sanctions, and commodity markets fell into disarray. Oil took the whip as the market fell less than a week after hitting a 14-year high. Also, the nickel short-squeeze which halted trading in London last week and had to be stopped soon after trading resumed this morning. ,
In China, Santos is mainly focused on how the country’s renewed pandemic lockdown will affect global supply chains. That risk was evident earlier this week as the lockdown at tech manufacturing hub Shenzhen forced Apple supplier Foxconn to shut down operations there.
And with the Federal Reserve widely expected to start several rate hikes today, markets are likely to see volatility. Santos, however, did not express concern over the Fed’s impact on economic growth.
“We have more inflation than the Fed would like to see, and perhaps we remain in a period where inflation is above target,” she said. “But we still think that growth in the US may remain above trend for this year before normalizing at the end of the year, and that is due to strong momentum.”
Each of these factors contributes to greater uncertainty in the markets, but JPMorgan still doesn’t expect a standoff for the US. In a separate note earlier this week, JP Morgan’s Quant Guru said that a lot of negativity is already priced in the stock market.
Europe, on the other hand, presents a more likely scenario for stagflation, Santos said. The bank looks at European markets more carefully.