- Harry Bennett
- December 6, 2022
- 5:49 pm
- 10 min read
The ECB claims a recession will hit in Spring but inflation should peak by the end of Q2 2023!
Indices
Futures
Forex
– Powell sparked optimism in the U.S. last week with comments that rate hikes would slow down. The S&P 500 rallied above its 200 day moving average for the first time since April (chart below) but has since corrected. Powell did caution there was a “long way” to go to restore price stability.
– U.S. Treasury yields were lower last week as the personal consumption expenditure index (PCE) showed signs of easing inflationary pressures. The 2 and 10 year treasury yield closed the week at 4.35% and 3.5% respectively.
– Employment figures were also above estimates at 263,000, with hourly earnings rising 5.09% another positive data print for the economy. The Dollar index moved to 104.38 overnight on Friday, marking the index’s lowest level since 28th June 2022. China easing helped boosted Asian currencies.
– An important chart (below) showing the majority of S&P 500 declines in bear markets occur once the Fed makes a pivot. The signal of a slowdown or lower interest rates should not always be taken as a positive considering since the 1970s, the average stock market decline after a pivot has been -42.5%.
– European stocks were predominately range bound last week with the CAC40 & DAX30 up 0.95% and 0.4% respectively. The biggest mover was the UK’s FTSE100 which closed the week up 1.25% at 7,570.0.
– In the Eurozone it has been a weak start to the fourth quarter as the retail correction continues. Sales dropped 1.8% month on month with declines for both food and non food retail trade. This is linked to the large purchasing power squeeze along with a shift from goods to services post the COVID-19 lockdowns.
– According to Francois Villeroy de Galhau the European Central bank (ECB) should raise interest rates by 50 basis points next week (December 15th), which would take rates to 2%. It was suggested a peak in inflation moving through the second quarter of 2023 alongside a recession during spring.
– Protests in China appear to have made some progress, with several regions starting to lift lockdowns and remove restrictions. Whilst this is not a full reopening of the country it is a promising sign. China’s 10-year bond yields dropped to 2.9% last week.
– In Japan, the Yen (JPY) has bounced back from its 32-year lows as despite the Bank of Japan maintaining their low interest rates and ultra loose monetary policy.
– BlockFi filed for bankruptcy citing its ‘significant exposure to FTX’ (also recently filed for bankruptcy) after investors pulled funds from the platform due to doubts over the companies finances. BlockFi said it owed money to more than 100,000 creditors and listed crypto exchange FTX as its second-largest creditor, with $275m owed on a loan extended earlier this year.
Conclusion
There is little change to the global macroeconomic outlook still looks muddled as the reality of a global recession begins to set in. The question now becomes how deep will this recession be? The more Dovish policy suggest things are starting to look more positive but concerns around the second largest economy, China remain. Consumer’s purchasing power continues its spiral downwards, adding more pressure to an overall economic slowdown.
Written by:
Harry Bennett
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