“‘The possibility of a Minsky moment in markets and geopolitics has increased. Even if central bankers successfully contain contagion, credit conditions look set to tighten more rapidly because of pressure from both markets and regulators.’”
The banking crisis of the past week has indeed increased nervousness. Bank of America’s March survey of global fund managers, out Tuesday, revealed that a “systemic credit event” is now seen as the biggest threat to markets. Stresses in U.S. shadow banking and corporate debt and developed-market real estate could trigger such an event, said strategists.
Overall, now is not the time to take chances, JPMorgan analysts stressed. “We stay cautious on risk assets which price in too little recession risk, while the banking crisis raises the prospect of a recession this year as credit is restricted,” Kolanovic and the team said, adding that equity and credit volatility seems “complacent compared to unprecedented rate volatility.”