While some analysts are warning of inflation and a slowdown in the global economy, others see it as a potential catalyst for cryptocurrency.
In a recent report, strategists at Bank of America Merrill Lynch (NYSE:BAC) issued a warning about rising inflation and how it would affect the US markets. However, they also said that this changing macroeconomic landscape could be the catalyst that advances the value of cryptoassets to a new level.
Cryptocurrency, which is often seen as a hedge against inflation, could benefit from this economic environment. Moreover, with interest rates expected to remain low, there could be more demand for cryptocurrency as an alternative investment. As such, the BofA strategists believe that cryptocurrency could reach a new level in the coming months.
In a weekly research note (via Reuters) to clients, BofA’s chief investment strategist, Michael Hartnett, wrote:
‘Inflation shock’ worsening, ‘rates shock’ just beginning, ‘recession shock’ coming.”
Hartnett also noted that against this backdrop, cash, volatility, commodities and cryptos could outperform bonds and stocks.
Meanwhile, “Minutes” from the Fed’s March meeting revealed that the central bank would be prepared to reduce its $9 trillion balance sheet more quickly than forecast. Policy makers also seem to be on the same page when it comes to increasing rates with plans to ‘expeditiously’ raise them.
In fact, the Street expects the central bank to hike its key interest rate by 50 basis point over each of the next three meetings.
In terms of notable weekly flows, BofA said emerging markets have been a bright spot in the global economy, and that is reflected in the latest data on fund flows. According to the banking giant, emerging market equity and debt funds both enjoyed strong inflows last week.
Emerging market equity funds attracted $5.3 billion in the week to Wednesday. Meanwhile, emerging market debt vehicles attracted $2.2 billion, their best week since September. This suggests that investors are confident in the prospects for emerging markets and are willing to put their money into these assets.
This is good news for the global economy as a whole, as emerging markets are playing an increasingly important role in driving growth.
BofA also said that U.S. equities enjoyed their second week of inflows, adding $1.5 billion in the week to Wednesday.
U.S. stocks traded lower on Monday, with the Dow falling 413 points, or 1.19%, at 34,308 and the S&P 500 slumping 76 points, or 1.69%, at 4,413.