24 Jun 2022
Rising recession fears see markets settle
Markets
- Equity markets were mixed this week with gloomy economic news later transitioning to good news for the equity markets.
- In local stock news, Australia’s biggest building materials manufacturers are cutting back operations, hiking prices, and considering moving production offshore to manage a spike in power and gas bills, adding pressure on the government to resolve the country’s energy crisis.
- Iron ore stock prices fell after the iron price tumbled below US$130 a tonne with Chinese steel mills reducing output given deteriorating demand prospects.
- Oil prices fell this week as weaker economic news hit home and with US President Joe Biden getting creative on how to bring down fuel prices for Americans.
Economics
- Australian Reserve Bank governor Philip Lowe told business leaders that the cash rate was unlikely to hit 4% by the year’s end as market pricing has been suggesting, and that he didn’t see recession on the horizon.
- A US leading economic indicator declined in May, in line with expectations, suggesting weaker economic activity in the period ahead.
- A key US manufacturing data point fell sharply in May, coming in below expectations, and pointing to the slowest growth in factory activity for almost 2 years as contractions in output and new orders had an effect.
- A US central bank representative said the risk of a recession is increasing and that it will take several years to return to the central bank’s 2% inflation goal, while chairman Jerome Powell warned that a US recession is a possibility and that it will be very challenging to achieve a soft landing. He confirmed that the bank was strongly committed to returning inflation to their objective.
- European Central Bank president Christine Lagarde told EU finance ministers of the banks plans to limit government bond spreads, meaning more money printing.
- UK consumer price inflation rose to 9.1% in May, from 9% in April, to the highest level since 1982. The headline number was mixed with core prices softening and producer prices rising.
- The Bank of Japan doubled down on its efforts to keep the Japanese 10-year bond yield at 0.25%, announcing it was maintaining its ultra-easy monetary stance.
- Chinese banks kept their main lending rates unchanged following the central bank’s decision to put policy rate cuts on hold as the economy starts to gradually recover from lockdowns.
Politics
- Germany has restarted its coal-fired power stations in order to guarantee the security of energy supplies, after Russia cut gas flows to its biggest customer by 60% last week. Base load power is critical to any energy framework, something which renewables cannot currently provide.
- Russia has ramped up the use of natural gas as a weapon in its war against sanctions, cutting gas supplies to France entirely and reducing supplies to Italy, its 2nd largest European customer. The moves come as the EU gave its tentative approval to give Ukraine candidate status.
- US President Joe Biden said a US recession isn’t inevitable and acknowledged that aides warned him about the inflationary risk of spending since taking office.
- Chinese President Xi Jinping reiterated his commitment to meet China’s 5.5% economic growth target this year amid mounting macroeconomic headwinds.
- French President Emmanuel Macron lost control of the national assembly, failing to achieve a majority, and forcing his party to negotiate alliances with other parties. A broad left-wing alliance is likely to be the biggest opposition group, while the far-right scored record high-wins with a 10-fold increase in MPs. Macron’s party is likely to form an alliance with the conservatives. France hasn’t had a hung election since 1988.
- Columbian elections have seen a former guerrilla take power, with the aim to transform the country’s business-friendly economic model with a radical far-left agenda, setting the scene for a drastic change of course for the country.
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