Risk assets facing nasty combination from falling growth and rising inflation, Citi says

Falling forecasts for real economic growth globally, together with rising 'core' inflation, made for a nasty mix for risk assets, analysts at Citi said on Tuesday.

In the opinion of Citi analyst Jeremy Hale, such a combination implied supply potential was limited rather than demand lacking.

For that reason, he told clients he expected market returns to remain disappointing and recommended they remain 'neutral' on equities and credit overall.

The broker´s position was "essentially" long yield in fixed income markets, long gold and neutral on risk assets.

Nonetheless, in the near-term a dovish European Central Bank and US Federal Reserve had resulted in a second wave of 'reflation' in financial markets, much like the episode seen in the first half of 2015, Hale said.

Hence, risk assets might yet stregthen further but, like last time, the risk existed that markets would eventually realise that monetary policy was fairly ineffective for asset prices, let alone economies.