(Bloomberg) -- A growing mismatch between aggressive pricing for US interest rate cuts and resilient economic fundamentals reducing the need for such easing risks creating a “reverse Goldilocks” scenario for global markets, according to a strategist at HSBC Holdings Plc. 

A pull-back in easing bets could trigger a selloff in risky assets and more gains for the dollar in the coming months, Max Kettner, chief multi-asset strategist at the lender, told Bloomberg TV in an interview. He sees the Fed starting its easing cycle in June, later than market pricing indicating the start of US easing cycle in May or even March. 

As US easing expectations for the first half of 2024 start to be priced out, it could lead to a “Reverse Goldilocks” scenario, Kettner said. Such a development would fuel “pain across the asset classes,” he said. 

Rate cut bets have ramped up in the past month, even as US economic data has shown “really solid fundamentals,” Kettner said, adding that inflation data this week may show lingering price pressures, which could cool speculation for a cut early in 2024.

Kettner said that either the economic outlook or the rates outlook will need to be corrected. For HSBC, “it’s the rate side that has gone a little bit too far, too fast, a little bit exuberant,” he said. 

This has led to a build-up of long positions in risky assets, raising the risk of a sharp reversal, he said. HSBC’s aggregate sentiment indicators now show “a very, very strong sales signal,” suggesting a reckoning may be coming, according to the strategist.

Kettner said there were “very few places to hide” if the Goldilocks scenario reversed. Holding dollars, particularly against the pound and the Swedish krona, would be a way to position for a selloff, along with investment in short-dated high-grade credit, energy, and Japanese equities. Meanwhile, HSBC has cut its overweight stance on equities and high-yielding credit on a tactical basis. 

--With assistance from Manus Cranny.

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