Global financial markets will remain at risk until there is clear evidence the U.S. economy is cooling, cautions BCA Research.

“Better-than-expected global economic growth has pushed up interest rate expectations in recent weeks. This has triggered a modest correction in stock prices and a more sizable jump in long-term bond yields,” the firm indicates in a research note.

“With the Japanese and euro area economies gathering momentum, the key to tempering global growth is the arrival of the long-awaited U.S. slowdown,” it says. “The Fed needs to see U.S. growth decline to a near-trend pace before it will back away from its monetary tightening program.”

“We think a U.S. slowdown looms, but the threat of ongoing Fed rate hikes will persist until growth moderates. In the meantime, global equity and bond markets are vulnerable,” BCA concludes.