The global stock markets fell after the U.S. inflation print.
Market concerns that action from the Federal Reserve and other central banks could risk tipping the economy into recession were alleviated on Friday when the consumer price index report came in hotter than expected.
On Friday, the major averages in the U.S. closed out their biggest weekly declines since January, and futures pointed to further losses on Wall Street when the opening bell sounds on Monday.
On Monday, shares in Hong Kong, Japan, and South Korea all fell more than 3%. As a sea of red swept through global risk assets, the pan- European Stoxx 600 shed 2%.
There is a chart.
Line chart with 593 data points.The chart has 1 X axis displaying Time. Range: 2022-06-12 05:46:00 to 2022-06-13 05:46:00.The chart has 1 Y axis displaying values. Range: -0.02 to 0.06.End of interactive chart.
The U.S. 2-year Treasury yield hit its highest level since 2007, and the 10-year rate for the first time since April, an indication that a recession is imminent.
The fear that inflation expectations have become entrenched beyond the well-known drivers such as supply chain and energy shocks is central to the adverse market reaction.
The probability of a bear market and a recession has increased as a result of Friday's punch in the gut.
Friday's inflation report indicated that inflation has not peaked and has instead widened throughout the economy.
The sex and violence of oil and commodity prices and other things is not talked about as much as rent is. He said that there seems to be upward momentum there as well, suggesting that inflation is going to be with us longer than we expected.
According to Richard Kelly, head of global strategy at TD Securities, the bond and stock markets are signalling that a recession is coming down the pike, most likely in the fourth quarter of 2022.
The ISM is expected to fall to 50 or less over the next two to three months, and this is what the Fed and central banks have to do to get inflation back.
Purchasing managers index reading can be used to gauge economic activity.
If the Fed wants to get inflation under control, they need to stop job creation for the moment.
The next week will be crucial in the fight against inflation.
The Federal Reserve will hold a meeting on Tuesday and Wednesday. The Federal Open Market Committee is widely expected to announce at least a 50-basis-point hike on Wednesday, having already raised rates twice this year.
The Bank of England will announce its latest interest rate decision on Thursday, along with the Bank of Japan, Swiss National Bank and Brazil's BCB.
Industrial production, retail sales, and producer price inflation are some of the data that investors will be looking at.
The U.K. economy contracted in April, falling short of expectations and stoking fears of a downturn ahead of the Bank of England's decision on Thursday.
The run of data will be combed for signals of a recession, with the added irony that any signs of activity strength are likely to be bad.
Kelly thinks that markets have become too focused on the idea that central banks have caught up with rising prices. Friday's data showed how far behind the curve the Federal Reserve is.
As investors sought the traditional safe haven of the U.S. dollar, it strengthened again on Monday. Kelly pointed out that there were long positions on the dollar against the euro and Canadian dollar held by the securities company.
He said that the equity differentials told him to be long dollars.
That is broadening out here, and that feeds back into the financial conditions loop in terms of that tightening that then comes back into the growth and the risk side in terms of what the market wants to price into equity and credit.
There are steps investors can take to weather the storm when it comes to the stock market. Kleinwort Hambros still holds a significant cash weighting and is trying to deploy it to fundamentally strong, long-term holdings when they hit attractive prices.
There will be a lot of gems in this whole mess. We have increased our allocation to commodities, which is a good thing as it protects you from inflation over time.
There is a huge structural undersupply of oil and gas in the energy sector, which makes it hard to avoid it if you are in the equity market.
All Rights Reserved © 2024
