Markets are currently in a ‘death spiral, according to Citigroup Inc. analysts led by Jonathan Stubbs.
Four inter-linked phenomena are driving a negative feedback loop in the global economy and across financial markets, i.e. the resilient U.S. dollar, lower commodities prices, weaker trade and capital flows, and declining emerging market growth, the analysts write.
“It seems reasonable to assume that another year of extreme moves in U.S. dollar (higher) and oil/commodity prices (lower) would likely continue to drive this negative feedback loop and make it very difficult for policy makers in emerging markets and developing markets to fight disinflationary forces and intercept downside risks,” the analysts add.
Corporate profits and equity markets would also likely suffer further downside risk in this scenario which Jonathan Stubbs calls ‘Oilmageddon’.”
“We should all fear Oilmageddon,” Citi concludes. In his opinion, global recession would leave nowhere to hide in equities.