Recession fears hammer stocks
Equites markets are enduring severe sell offs as worries about global growth mount. Stock markets in Europe are all down over 2% as recession whispers loom over the continent. In recent weeks there has been growing speculation about a downturn in the UK and the eurozone as some economic reports point to a fall in activity. The cooling of economies in Europe comes at a time when the Bank of England are in the midst of a hiking cycle and the European Central Bank have made it very clear they will lift rates next month. High levels of inflation and higher borrowing costs are likely to compound the economic slowdown. It is similar situation over in the US as today’s jobless claims reading increased to 231,000 – the highest level in four months. This could be an early warning the labour market is about to face bigger problems. A few weeks ago, Jerome Powell, warned the possibility of a recession has increased, and considering the jobs data, traders are a touch more concerned. The core PCE report is the Fed’s preferred measure of inflation and it dipped from 4.9% to 4.7%. It was the third consecutive monthly fall, and keep in mind the February update was 5.3%, so it has declined considerably. One way to interpret the data is that demand is cooling, possibly because of the cost-of-living crisis, and if underlying demand is fading, that would feed into the recession narrative. US stocks are offside, but they have not fallen as much as their European counterparts, the S&P 500 is down 1%.
Bond yields have come under pressure due to the risk-off mood in the markets. Earlier this week the US 10-year yield hit 3.24% and now it has dropped to 3%. Traders are exiting equities and pouring their funds into lower risk assets like government bonds, hence the slide in yields. Also, a potential factor behind the drop in yields is the fall in the core PCE level as it could be argued the Fed now have less of an incentive to keep hiking rates at an aggressive pace. Commodities are under the cosh as oils and industrial metals are nursing large losses due to demand worries. WTI and copper are down 3.3% and 2.3% respectively. Gold is essentially flat on the session because it is slightly benefitting from the flight to quality play.
