Morning offer: this is going to hurt

A symphony of light illuminates the south facade of the European Central Bank (ECB) headquarters in Frankfurt, Germany, Dec. 30, 2021. REUTERS/Wolfgang Rattay/File Photo

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A look at the day ahead at the markets of Julien Ponthus.

Investors watching recession learned little they didn’t already know about the world’s top central bankers meeting at the European Central Bank’s annual conference in Portugal.

Fighting inflation is top priority and avoiding a recession is secondary, they made clear, with US Fed chairman Jerome Powell acknowledging that there would be some “pain” involved in the process. read more

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“Certainly there is a risk,” central banks will tighten monetary policy too quickly, Powell told an audience all too well aware of the risks involved in fighting a historic rise in inflation.

Indeed, the first half of 2022 marks the worst semester for Wall Street’s S&P 500 (.SPX) since the 2008 financial crisis, even beating Black Monday’s H2 1987, where the benchmark fell by 18.7%.

With just one session to go, the US index is set to fall 20% in the past six months, a plunge that has only been matched twice in the past 50 years.

With consumer morale plummeting and the US economy shrinking more than previously estimated in the first quarter, the question is, how deep is the bottom of this bear market?

Well, with Asian markets closing the quarter in a gloomy mood and European and US stock futures plunging this morning, the future doesn’t look very promising.

What happens if investors, who bought a net $195 billion worth of shares this year despite the sell-off, suddenly head for the exits when earnings expectations are eventually revised downwards?

Macro data is also weakening. Japanese factory output recorded its biggest monthly decline in two years, while business confidence in New Zealand fell again in June.

Key developments that should give the markets more direction on Thursday:

– Chinese factory, service sectors shake off 3 months of lockdown pain read more

– OPEC+ has little prospect of pumping more oil read more

– Swiss retail sales in May 1.6% lower year on year

– UK posts record current account deficit, economy grew as previously thought in Q1 read more

– Kraft Heinz takes products from British retailer Tesco in price row read more

– Germany May Retail Sales, May Import Prices, June Unemployment Data, June Preliminary CPI

– US PCE Index

– Colombia Central Bank Meeting

– Swedish Riksbank meeting; Monetary Policy Report to be published at 0730 GMT

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Reporting by Julien Ponthus

Our Standards: The Thomson Reuters Trust Principles.

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