EXANTE Macro Insights

EXANTE Macro Insights
  • A questionable soft landing
  • ECB emergency measures
  • Winter has come for Crypto 

US:
S&P 500 is down about 23% YTD
Nasdaq is down 32.8% YTD
Dow Jones is down 15.6% YTD

Europe:
Stoxx 600 is down 17.4% YTD
DAX is down 17.9% YTD 
CAC40 is down 17.7% YTD 
IBEX35 is down 7.3% YTD 
FTSE MIB is down 20.6% YTD
FTSE100 is down 4.6% YTD

Global:
MSCI World Index is down 20.5% YTD
Bitcoin is down over 55% YTD

Note: As of 5pm EST 16 June 2022

Recipe for recession? On Wednesday the Fed raised interest rates 75 bps, the biggest hike since 1994, and lowered its growth forecast for 2022 to a below-trend 1.7%. It also increased its inflation forecast to 5.2% this year while only falling to 2.6% in 2023, and down to 2.2% in 2024.

Meanwhile, the S&P 500 officially entered “bear” territory this week as it is down 23% YTD. This seems to imply that the market is anticipating recession in the US this year as energy and food inflation along with continuing supply constraints due to China’s ongoing zero Covid lockdown measures. And that recession fear is spreading globally, as the Bank of England and the Swiss National Bank both raised rates on Wednesday.  Equities, which initially rallied after the Fed announcement, have tumbled again, suggesting that the deep sell-off in equities is likely to continue until there are clearer signs that inflation is easing. The effect on tech and growth stocks like Tesla, Amazon, Nvidia, Shopify and Roblox Corp, where valuations seem most stretched and investors worry about future profitability as the economy slows and the cost of capital increases, will continue to be negative.

ECB under pressure. The ECB held an emergency meeting on Wednesday to respond to the growing fragmentation risk between sovereign bonds in Europe as Italian yields passed 4%, a level last seen during the 2014 sovereign debt crisis. It is now promising to “accelerate the completion of the design of a new anti-fragmentation instrument” to support the eurozone’s most indebted nations. The continuing rise in inflation, the growing threat of recession as consumer and business confidence starts to fall, and the ECB’s more hawkish tone has seen bond yields move upwards while the Euro has hovered at the $1.04 mark.

Crypto’s deep freeze? Holders of Bitcoin, Ethereum and Cryptocurrency ETFs like Volt crypto industry revolution and tech ETF and Bitwise Crypto Industry Innovators ETF find themselves in scary territory once again as cryptocurrencies experienced their second crash of the year this week. The crypto exchange Binance temporarily halted bitcoin withdrawals, while crypto exchange Coinbase is laying off almost 20% of its workforce. And the lending platform, Celsius, blocked customer withdrawals. However, it may be too soon to say crypto has frozen to death; the cryptocurrency market is still worth nearly $1 trillion. This week’s events will likely result in a faster push for regulation, including stronger investment safeguards and transparency. On June 14, SEC chief Gary Gensler said crypto companies should be required to disclose the risks they’re taking.

Key data to look out for this coming week 

In Europe: On Friday there is the EU Ecofin meeting as well as the release of Eurozone HICP; this  is a measure of purchasing trends and inflation. On Wednesday, there’s Eurozone consumer confidence survey data. Investors will be looking for signs of a potential drop in demand. On Thursday there is the release of the Eurozone Economic Bulletin as well as Eurozone Composite, Manufacturing and Services PMIs. 

In the US: On Friday, the Fed will be releasing its Monetary Policy report to Congress. This comes as inflation continues to roar ahead in the US and politicians are wondering what else can be done by either the Fed or the government to ease consumer worries. On Thursday, there is initial and continuing jobless claims data; the market will be looking to see if an overheated labour market is cooling. There’s also Composite, Manufacturing and Services PMIs.

In the UK: On Wednesday there’s CPI, PPI and retail price data. The BoE has said it expects inflation to reach over 11% this year; traders will be watching this data closely to try to judge just how high it may actually go and whether or not the consumer is starting to take cover. On Thursday, there are services and manufacturing PMIs.

DISCLAIMER: While every effort has been made to verify the accuracy of this information, EXT Ltd. (hereafter known as “EXANTE”) cannot accept any responsibility or liability for reliance by any person on this publication or any of the information, opinions, or conclusions contained in this publication. The findings and views expressed in this publication do not necessarily reflect the views of EXANTE. Any action taken upon the information contained in this publication is strictly at your own risk. EXANTE will not be liable for any loss or damage in connection with this publication.

This article is provided to you for informational purposes only and should not be regarded as an offer or solicitation of an offer to buy or sell any investments or related services that may be referenced here.

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