RBS Predicts Global Market Crash: What’s In It For Them?

According to the UK daily newspaper Telegraph, a research team from Royal Bank of Scotland is warning investors to get ready for a “full fledged crash in global stocks and credit markets over the next three months”, noting inflation will paralyze major central banks. They forecast a 300 point drop in the S&P by September to around 1050, with contagion spreading across global stock markets, and for the iTRAXX index (high grade corporate bonds) to widen to 130/150, the “Crossover index” (low grade corporate bonds) to widen to 650/700 on renewed investor panic. Their reasoning is that the temporary momentum from America’s fiscal boost may fizzle out by July on delayed impact from the oil spike.

Bob Janjuah, credit strategist at RBS, said, “A very nasty period is soon to be upon us - be prepared.”

He said, “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 also said in order for global inflation to be lower, we may need to see slower global growth.

Maybe RBS is short on S&P, and they want investors to go short as well, while screaming “The sky is falling”? That’s right, it’s a bit insane for a financial institution to make such sensational doomsday remarks. However coming from the guy who was known for his warnings last year about the credit crisis which proved to be accurate, it might be worth listening to what he’s saying.

And if RBS is warning investors about this market crash which would amount to one of the worst bear markets in the last 100 years, does it want normal retail stock investors to sell their portfolios and realize whatever losses they have sustained over the past year, thus pushing stocks even lower (if RBS is short, it would make sense!)? Given the volatile market conditions over the past few months, investors will have experienced a huge blow and cutting their losses now might be too little, too late.

Forex Trading

With no major economic releases or speeches on tap today, currencies have been moving sideways. The US dollar is up against the Euro, Swiss franc, British pound and Japanese yen. The British pound is a notable loser, falling for the second day against the dollar as minutes from the Bank of England June 5 policy meeting showed members decided an interest-rate hike wasn’t “urgently” needed to keep inflation under control. The minutes also revealed that David Blanchflower was the only policy member who wanted a rate change, voting for a cut to from 5% to 4.75%. Blanchflower might already have changed his mind about that after yesterday’s release of UK inflation data which showed inflation up 3.3%.

GBP/USD fell to a low of 1.9475 today, but traded above yesterday’s low. It has since moved back up above 1.9550. Shorting interest may crowd around 1.9600 and 1.9630. The pound is also weaker versus the Euro, trading near the lowest level in a week. If the BOE resists lifting interest rates higher to keep inflation expectations down, we could see more downside risks to the Pound.

Yesterday, BOE’s King wrote a letter to Chancellor of the Exchequer Alistair Darling, saying that the “path of bank rate that will be necessary to meet the 2 percent target is uncertain.”

Economic Calendar For Thursday:

Swiss National Bank rate decision (rate expected to stay at 2.75%) 0730 GMT

UK retail sales 0830 GMT

Canada CPI 1100 GMT

US initial jobless claims 1230 GMT

US Philly Fed 1400 GMT

Posted in Categories: Canada, Eurozone, Forex, Japan, Stocks, Switzerland, UK, USA.

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Comment by Knight

2008-06-18 11:20:57

Why call for a global catastrophe when many stock indices are already in the bear market territory??

RBS, what’s the point saying all that gloom and doom?!

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Comment by jlounsbury59

2008-06-18 18:16:11

Why consider the possibility of a global catastrophy when many stock indices are already in bear market territory? Ask anyone who jumped back into tech stocks in 2001 because the market was down 20%. It wasn’t even half way to the bottom.

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