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DailyReckoning.com
Not one but three different banks are warning investors of major crisis ahead. Note to the banks: where have you been for the last year? A thousand martini lunch? The slow-motion credit crisis is nearly twelve months old. The question today is whether the competing interest rate policies of the European Central Bank and the U.S. Federal Reserve will lead to more selling in global stock markets and higher commodity prices. Inflation is winning the war.

“A very nasty period is soon to be upon us - be prepared,” says Royal Bank of Scotland’s chief credit strategist Bob Junjuah. In Wednesday’s U.K. Telegraph Junjuah says, “The Fed is in panic mode… The massive credibility chasms down which the Fed and maybe even the European Central Bank will plummet when they fail to hike rates in the face of higher inflation will combine to give us a big sell-off in risky assets.” Aussie stocks are caught in the thematic cross fire. Higher commodity prices are good for commodity producers. But global inflation sows the seeds of global recession, which is not bullish for resources.

Morgan Stanley’s European research team says an European Central Bank rate hike next month (the one Jean Claude Trichet has threatened to deliver) could lead to a “catastrophic event.” Morgan’s report concluded that, “We see striking similarities between the transatlantic tensions that built up in the early 1990s and those that are accumulating again today. The outcome of the 1992 deadlock was a major currency crisis and a recession in Europe.” More

Tags: European Central Bank, major crisis, Morgan Stanley, Royal Bank of Scotland, US Federal Reserve