It’s been a rather choppy week in financial markets and we’re seeing that reflected again on Thursday, with European stocks back in negative territory after recovering losses earlier.
Equity markets have fallen heavily over the last couple of weeks as aggressive tightening and heightened recession fears weigh heavily on appetite risk. They may now be establishing a temporary bottom as yields ease off their highs but don’t get too excited. The outlook is highly uncertain, and economic risks are heavily tilted to the downside, making any significant stock market recovery challenging.
Slowly but surely, central banks are coming around to the idea that recessions may be the price to pay for price stability. Some are better placed than others to weather the storm but even they may ultimately get swept up in it eventually.
That came across during Jerome Powell’s appearance in front of the Senate Banking Committee on Wednesday. Referring to a recession as “certainly a possibility”, the Fed Chair appears to be edging towards waving the white flag on the economy, following in the footsteps of his peers here in the UK.
Perhaps that’s why we’re seeing yields easing over the last week. A recession is obviously not the desired outcome but it could in theory mean interest rates are not rising as much. Still not a good reason for stock markets to undergo any significant recovery though. The outlook is uncertain at best until the inflation data shows signs of improving.
CBRT continues to turn a blind eye
The CBRT kept interest rates unchanged at 14% today. This section is going to be quite short as there’s nothing new to add on the Turkish central bank. It remains committed to its monetary policy experiment despite 73.5% inflation and a plunging lira. The fact that it’s undertaking such an experiment at arguably the worst moment in decades as other central banks scramble to hike rates and rein in what they consider to be sky-high single-digit inflation makes the stubbornness of the CBRT all the more ridiculous.
Are oil traders buying the dip?
Oil prices have recovered earlier losses to trade modestly higher on the day. It’s been quite the correction in oil with all the talk of recession proving to be the counterforce to a tight market. Let’s not get carried away though, we’re still in triple figures and I don’t see a strong case for the price to retreat too far. That’s naturally dependent on how serious the threat of recession becomes but right now, price risks remain tilted to the upside. Today’s recovery may even be a sign of traders flooding back in to buy what has been a decent dip in a very short period of time.
Worst yet to come?
Bitcoin continues to hang on in there around $ 20,000 but it’s far from convincing. There still doesn’t appear to be an enormous amount of appetite at these levels and while it has shown some resilience, I’m not convinced it can hang on. There’s plenty of support below though but it may just be the case that it’s going to get worse before it gets better.