Risk Sentiment Could Remain Weak Until End 2021

• The global risk environment has deteriorated since September 2021. Concerns about both the Delta variant and a ‘Lehman moment’ for Chinese property firms such as Evergrande have eased slightly, but a flurry of (new) risks have started to be priced in, weighing on risk assets. 
• The US Federal Reserve (Fed) has turned more hawkish, cementing the view that it will taper before the end of 2021 and revealing that it could hike interest rates in 2022. Jerome Powell also signaled that high inflation could last longer than initially anticipated. 
• Meanwhile, there is a fiscal impasse in the US, and given the significant uncertainty surrounding the US debt ceiling, the US Treasury is potentially at risk of running out of cash around mid-October. In addition, global growth has likely peaked, credit impulse is slowing, Chinese growth headwinds are prominent, and soaring energy prices could further dent the recovery and keep prices higher for longer.

(Source: Fitch Solutions)