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RBS issues global stock and credit crash alert
By Ambrose Evans-Pritchard, International Business
Editor
The Royal Bank of Scotland has advised clients to brace for a
full-fledged crash in global stock and credit markets over the next three months
as inflation paralyses the major central banks.
"A very nasty period is
soon to be upon us - be prepared," said Bob Janjuah, the bank's credit
strategist.
A report by the bank's research team warns that the S&P
500 index of Wall Street equities is likely to fall by more than 300 points to
around 1050 by September as "all the chickens come home to roost" from the
excesses of the global boom, with contagion spreading across Europe and emerging
markets.
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| RBS warning: Be prepared for a 'nasty' period |
Such a slide on world bourses would amount to one of the worst
bear markets over the last century.
alert: Quotes from the report
managers react to RBS alert
for the euro is in doubt
RBS said the iTraxx index of high-grade corporate bonds could
soar to 130/150 while the "Crossover" index of lower grade corporate bonds could
reach 650/700 in a renewed bout of panic on the debt markets.
"I do not think I can be much blunter. If you have to be in
credit, focus on quality, short durations, non-cyclical defensive names.
"Cash is the key safe haven. This is about not losing your money,
and not losing your job," said Mr Janjuah, who became a City star after his grim
warnings last year about the credit crisis proved all too accurate.
RBS expects Wall Street to rally a little further into early July
before short-lived momentum from America's fiscal boost begins to fizzle out,
and the delayed effects of the oil spike inflict their damage.
"Globalisation was always going to risk putting G7 bankers into a
dangerous corner at some point. We have got to that point," he said.
US Federal Reserve and the European Central Bank both face a
Hobson's choice as workers start to lose their jobs in earnest and lenders cut
off credit.
The authorities cannot respond with easy money because oil and
food costs continue to push headline inflation to levels that are unsettling the
markets. "The ugly spoiler is that we may need to see much lower global growth
in order to get lower inflation," he said.
Stanley warns of catastrophe
comment and analysis from the Telegraph
"The Fed is in panic mode. The massive credibility chasms down
which the Fed and maybe even the ECB will plummet when they fail to hike rates
in the face of higher inflation will combine to give us a big sell-off in risky
assets," he said.
Kit Jukes, RBS's head of debt markets, said Europe would not be
immune. "Economic weakness is spreading and the latest data on consumer demand
and confidence are dire. The ECB is hell-bent on raising rates.
"The political fall-out could be substantial as finance ministers
from the weaker economies rail at the ECB. Wider spreads between the German
Bunds and peripheral markets seem assured," he said.
Ultimately, the bank expects the oil price spike to subside as
the more powerful force of debt deflation takes hold next
year.
You can feel where this thing is going.Very spooky