Olivia

Despite encouraging headlines around China loosening its covid policies, US stocks faded aggressively from earlier strength after harrowing consumer confidence data poured ice water on the month-end relief rally. For context, that is in the region it was printing in the 2015/16 downturn. It is a tough market to navigate these days: yesterday's market was trading bad data equals good news; today, weak data signals all roads lead to recession.  And with consumer confidence hitting multi-year lows, dragged down by high gasoline and other inflation price pressures, walking in to see Brent Crude testing $114 is providing more gnarly inflationary proof is still in the pudding.  I expect the earnings downgrade dam to burst, but the market reaction will determine whether the cuts are enough.  Short-sellers were waiting for verification that the US consumer was faltering. The dire sentiment data suggests weaker consumer demand will intensify an earning recession that could trigger new lows. So, the extent to which the recent US and Eurozone equity market upswing marks the cycle low or is a bear market rally depends primarily on downside earnings risks from the economy and the latest data should provide a very sobering thought  With the macro backdrop… Read More »All roads lead to recession

European stocks continued their recovery on Tuesday, although that momentum was lost heading into the close as they gave back a portion of their gains. The US, meanwhile, is seeing large losses on the back of a couple of days of yields rising and some disappointing economic data. The CB consumer confidence reading was a blow, with the expectations component suffering a particularly large drop which doesn't bode well given how resilient spending has been until now. While the labour market remains in a very good position, areas of weakness are appearing in the economy – such as the property market – and perhaps consumer spending will be next. This would be a massive setback and potentially the strongest signal yet that the US is heading for a recession. Stocks had been given a boost earlier by a relaxing of quarantine restrictions in China that may be the first move towards a softening of its zero-Covid policy. Perhaps investors are getting carried away with a very modest easing of restrictions but the policy is a big potential headwind for the global economy so any loosening will be celebrated. Of course, these are extremely anxious times in the markets so the… Read More »Header image stocks turn negative on Wall Street

Stock indexes are coming off their first winning week in over a month even as economic and geopolitical storm clouds remain little changed. While bulls want to believe this is an early sign that stock prices may be close to finding a bottom, others caution that portfolio rebalancing could be having an outsized influence on markets right now. The midway point of the year This week brings the end of the month as well as the end of the second quarter on Thursday, June 30, which will also mark the midway point of the year. Considering the dramatic shift in stock prices during Q2 along with the relatively low trading volume that has set in, this “rebalancing period” is expected to be particularly active and likewise have a stronger than normal impact on market direction. Some insiders credit portfolio rebalancing toward the end of Q1 for a short-lived rally during the last week of March. For reference, the S&P 500 is still about -700 points lower since the peak of that rally, so there could still be more room to upside as the money continues to move and reposition into quarter-end. Data to watch This week, investors have a ton… Read More »The Midway Point of The Year: What is next for the stock market?

The German IFO Business Climate Index for Europe decreased marginally from 93.0 in May and 92.9 in consensus estimates to 92.3 in June. The Current Economic Assessment also declined in the reporting month from May's 99.5 to 99.1 points, as was predicted. Unexpectedly, the IFO Expectations Index, which measures businesses' estimates for the next six months, fell to 85.8 in June from 86.9 in May and 87.4 in market expectations. Following the publication, institute economist Klaus Wohlrabe stated that despite elevated uncertainty, a recession is not now in progress. But the prospect of a gas shortage has made businesses more hesitant. Double bottom? It looks like a perfect double bottom pattern, with the support near February lows at 5,850 EUR. Thus, we might see some impulsive bullish momentum as long as that level holds.  The resistance is expected at May's lows near 6,075 EUR, and if broken to the upside, a further rally toward 6,250 EUR could occur. However, considering the recent problems in the global economy, any rallies are likely to be considered corrective pullbacks, with the long-term bearish trend possibly remaining intact.

As Congress sought answers from Federal Reserve chairman Jerome Powell this week, investors are seeking buying opportunities in oversold markets.  Stocks did manage to bounce on hopes that the worst of the inflation spike might be behind us. Precious metals, meanwhile, struggled to gain any upward traction. It was also a rough week for base metals, energy, and broader commodity markets. The CRB commodity index plunged to its lowest level since March.  Although prices for most raw materials remain considerably higher year to date, the selloff in futures markets since the Fed’s 75 basis-point rate hike may give the economy at least some temporary relief from inflation.     Fed chairman Jay Powell was grilled by lawmakers on the hot topic of inflation during testimony Wednesday and Thursday. Powell actually admitted that the Fed got it wrong when it came to expecting inflation to be transitory. But he denied that the Fed’s massive expansion of the currency supply is a major contributor to rising prices. Powell’s attempts to skirt blame were shut down by Representative Blaine Luetkemeyer: Jerome Powell: So most overwhelmingly, most economists would not think of it in terms of money supply, but would think of it in… Read More »Fed Chairman admits missteps but not fundamental flaws

It’s certain that the recession will come eventually. The questions are: when, how will it impact the market, and are there any reasons to be afraid? Is a recession coming? Yes, it is! Recession is a normal part of a business cycle, so, yes, the current phase of economic boom will eventually turn into recession. That’s for sure. The more tricky question is about timing: is a recession just around the corner, as more and more economists and analysts worry? Well, there are some disturbing economic signals worth looking at. First, in the first quarter of 2022, the real US GDP decreased 0.4% compared to the Q4 of 2021 (see the chart below), or 1.4% at an annualized rate, according to the advance estimates by the Bureau of Economic Analysis. The decline in GDP is always scary, but this time it shouldn’t be, as it resulted mainly from an increase in the trade deficit, i.e., the widening difference between exports and imports. What happened is that supply chains improved, so imports of goods surged, causing the GDP to drop, as exports are added to the GDP while imports are subtracted from it. However, this is likely to reverse, as businesses… Read More »Recession is coming: Should you be concerned?

24 June 2022 – According to data from global investment trading platform, Capital.com, 38% of trades placed by its clients so far this quarter are short, which is 15% higher compared to the same period last year. This may suggest that traders have been getting more bearish as the year goes on —although of course as a total group most are still favouring the long side of the market.  “Given the size of market slides— across all sorts of asset classes this year—it is perhaps not surprising that more traders are choosing to short-sell,  to perhaps position themselves to profit from further market weakness, or even hedge other investments.  Once again it is the NASDAQ 100 that has proved to be the most popular market with traders this week.  Volatility always attracts traders – and we still continue to see sizeable swings in global stock indices.  Only last week the NASDAQ traded down to its lowest levels since November 2020.  The last few days have seen something of a bounceback but at the moment, opinion seems split as to whether this is a sustainable recovery or just another dead cat bounce before the market slides lower once more. The area that… Read More »Clients step up short positions as markets remain volatile

WTI oil WTI oil regained traction and bounced around $3 on Friday, on revived supply fears on almost total shutdown of production in OPEC member Libya, due to unrest in the country. Fresh strength correct strong fall on Wednesday, when the US announced measures to lower record fuel prices, although oil price is on track for the second consecutive weekly loss, as fears that rising interest rates would slow already fragile growth and push global economy into recession. Technical picture on daily chart is overall bearish but signals are mixed, as negative momentum remains strong, but stochastic reverse from oversold territory and RSI turned north. Fresh recovery was also attracted by next week’s daily cloud twist and pressures broken trendline support at $106.96 (bull-trendline off Apr 11 low), close above which would add to positive near-term signals, however more evidence of reversal would require lift above psychological $110 barrier and June 31 lower top at $111.13. Res: 106.96; 108.28; 109.09; 110.00. Sup: 105.40; 104.66; 103.61; 102.30. Interested in WTI technicals? Check out the key levels

Notes/Observations -European economic data continues to miss expectations as Spain GDP and mortgage lending, Hungary wages, Turkey capacity and confidence, Czech confidence, Italy confidence, Germany IFO survey and UK retail sales all came in worse than forecasted. -As Finland and Sweden markets close for Midsummer's Eve holiday, the UK and Germany take focus with light macro news. -UK PM Johnson comments that he must do more for the cost of living as he recognizes the conservative party by-election defeats in key districts, Tiverton and Honiton. -Germany IFO Survey missed consensus in business climate and expectations while Chancellor Scholz reiterated they must do more to diversify away from Russian gas as the economy ministry plans to transform suspended Nord Stream 2 pipeline into a LNG terminal. -Energy levels remain a significant focus for sentiment as Belgium PM declared that EU countries need to collectively buy energy to avert a winter crisis. They join Germany, Netherlands, UK, China and Australia with recent commentary on gas storage levels and concerns of blackouts. -In general Asia closed higher as bond yields withdrew. EU indices start 0.2-2.0% higher with bond yields lower. US Futures point higher. Elsewhere Gold -0.1%, BTC +2.2%, ETH +5.4%, DXY -0.2%,… Read More »Focus continues to be on central banks’ rate path

Summary United States: The Housing Market Begins to “Reset” Fed Chair Powell presented the Federal Reserve's semiannual Monetary Policy report to Congress this week. In his testimony, he acknowledged that tightening monetary policy in order to reduce inflation may result in a recession. Higher mortgage rates are weighing on home sales. During May, existing home sales fell 3.4%, the fourth straight decline. New home sales rose 10.7% in May, although are down 5.9% year-to-year. Next week: Durable Goods (Mon), Personal Income & Spending (Thu), ISM Manufacturing (Fri) International: Global Trends of Slowing Growth, Elevated Inflation and Rising Rates Continue The Eurozone services PMI fell noticeably in June, signaling slower growth ahead. However, as inflation pressures intensify, we still expect the European Central Bank to raise interest rates in July. The Norges Bank delivered a hawkish surprise, raising its policy rate by 50 bps to 1.25% this week. Meanwhile, in Canada, solid retail sales and rapid inflation mean we now expect the Bank of Canada to hike rates 75 bps at its July monetary policy meeting. Next week: China PMIs (Thu), Japan Tankan Survey (Fri), Eurozone CPI (Fri) Interest Rate Watch: SOMA Starts Up Quantitative Tightening This month, the Federal Reserve… Read More »Weekly economic and financial commentary