Global Markets Face 'Minsky Moment' Danger: Allianz

How soon do the cuts come? Because now the market does seem to be thinking that we get a pause until September and then is pricing in a couple of cuts. I mean, some people say, come on, come on to the set here in London and agree with that view. Others say cuts could come as soon as September. Some say cuts won't happen until next year. What's your thinking? On the Fed, we don't expect cuts before the very end of this year. We think that the Fed will have to hold still for quite some time. And unfortunately, we still continue to expect a form of recession in the U.

S. towards the second part of the year. We think that the excess hoarding from COVID is waning out. We think that we see the lending conditions deteriorate further. And so somehow this is taking a toll on consumer demand, but also on firms' access to credit. And so we think that they're going to hold still towards the end of the year and then only cut towards the very end of the year. OK, that's interesting.

If we have to wait that long to get those cuts then, Ludovic, where does that leave for commercial real estate sector? Because I know that you've had concerns about that in the past. I was talking to a guest earlier who was suggesting that this was going to be a slow burn sort of development. And many people have had their eyes on commercial real estate for some time already. Does it feel like something that's slow burn and does it feel contained? Or could it be something that spills over into other parts of the economy? Well, I think what is sure is that we have all the ingredients of a so-called Mitzki moment, right? You see that everywhere these liquidity pools or liquidity crunches are starting to be visible. And so, of course, the commercial real estate and the doom loop with the regional banks in the U.S. is a concern.

I also don't think we're going full-flesh into a crisis. I think everybody is trying to avoid this. I think I'm concerned about the mispricing of corporate credit risk, especially when I think that high yield spread is still too compressed to be honest. And I'm also looking at the non-bank financial intermediary, so hedge and spend chance funds. Because you see that everybody's problem right now is the very abrupt tightening. But then there is an additional layer of wrong risk management. And so this is very idiosyncratic.

And so this could come, at least the new financial accidents could come from the banking sector, could come from some very specialized hedge funds on commercial real estate. But it could also come from a mixture of those two. And so that's why we're getting, you know, we are cautiously optimistic towards the end of the year. We don't think we are in the remake of the global financial crisis. But I think this release moment, this cathartic moment, are going to be more frequent in the next few months, for sure.

Bloomberg