EXANTE Macro Insights

EXANTE Macro Insights

Despite rising recession risks, stocks rallied although investors are wary of easy money drying up on central bank tightening.

  • Recession beyond Central bank control
  • Europe running out of power
  • Crypto’s saviour?

US:
S&P 500 is down 20.3 % YTD
Nasdaq is down  28.2YTD
Dow Jones is down 16.1% YTD

Europe:
Stoxx 600 is down 17.5% YTD
DAX is down 18.7% YTD 
CAC40 is down 17.7% YTD 
IBEX35 is down almost 7% YTD 
FTSE MIB is down almost 21% YTD
FTSE100 is down 4.9% YTD

Global:
MSCI World Index is down 21.2% YTD
Bitcoin is down over 55% YTD

Note: As of 5pm EST 23 June 2022

Recession risks rise. On Wednesday, US Fed chairman Jerome Powell admitted that a recession is “certainly a possibility” and that avoiding a downturn now largely depends on factors outside the Federal Reserve’s control. The labour market remains, in his words, “hot”; initial claims for state unemployment benefits fell last week by 2,000 to a seasonally adjusted 229,000, with manufacturing and services activity falling. Nevertheless, equities managed to climb this past week with pharmaceutical stocks like Moderna, Sanofi and GSK benefitting from recent FDA and European Medicine Agency approvals of next generation Covid-19 vaccines while the tech and growth  stocks that have been hammered recently like Tesla, Amazon, and Shopify saw an uplift. 

A European energy crunch. Markus Krebber, head of Germany’s RWE, has warned that if Russia cuts off gas supplies it will test European solidarity this winter as LNG, up 60% this past week, will remain limited with US supply curtailed by a plant outage there and rising demand from Asia. Germany's economy minister Robert Habeck said certain industries in Europe’s largest economy would have to be shut down if there is not enough energy this winter. Germany triggered Phase 2 of three of its emergency gas plan on Thursday and is looking to restart its coal mines. However, European stocks have regained some ground this week as lower valuations and falling bond yields improved risk appetite. The Euro was up this past week to pass the $1.05 mark. 

Crypto’s bailout. Sam Bankman-Fried, the crypto billionaire who co-founded digital-asset exchange FTX Trading Ltd., has provided credit to lending platform BlockFi and Voyager Digital. He told NPR that “I do feel like we have a responsibility to seriously consider stepping in, even if it is at a loss to ourselves, to stem contagion.” This resulted in some temporary improvement for Bitcoin and Ethereum while the recent problems of crypto lenders may lead to consolidation in the sector. 

Key data to look out for this coming week 

In Europe: Eurozone consumer confidence and business climate data on Wednesday will be closely watched as indicators of production and future consumer demand. On Thursday is Eurozone unemployment data. 

In the US: On Friday the Michigan Consumer Index, on Monday US durable goods orders and non-defence capital orders will show the state of US production activity and whether the cost of investing is scaring consumers. On Tuesday is housing price index data; a slowdown in housing prices shows that economic concerns are weighing on the economy. On Wednesday, all eyes will be on US GDP data. On Thursday the focus will be on initial jobless claims and labour market tightness as well as on personal consumption data. 

In the UK: On Wednesday, Bank of England Governor Andrew Bailey will give a speech. He will most likely have to lay out the BoE’s options and ability to prevent stagflation given Friday’s falling retail sales, which signalled falling demand amidst a growing cost of living crisis. On Thursday is GDP data, which will be closely watched by traders to see if the UK is officially closer to recession.

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