There is a 98% chance of an imminent global recession

By JustForex

The Dow Jones Index (US30) decreased by 0.43% at the close of the stock market yesterday, while the S&P 500 (US500) fell by 0.23%. NASDAQ Technology Index (US100) added 0.69% by the end of the day. The decline is getting deeper on Wall Street despite rising consumer confidence in September. The S&P 500 fell yesterday to its lowest level since December 2020, bringing this month’s loss nearly 8%. Ned Davis Research now thinks there is a 98% chance of an impending global recession.

At his speech yesterday, Fed spokesman Bullard said that the US has a serious problem with inflation, calling for further rate hikes. The committee will continue to raise rates, with a target peak of 4.5%. Bullard also added that the Fed would need to keep rates high for some time. Federal Reserve Bank of Minneapolis President Neel Kashkari said that the current pace of rate hikes is “appropriate” and reiterated the Fed’s commitment to lower inflation.

Stock markets in Europe were mostly down yesterday. Germany’s DAX (DE30) decreased by 0.72%, France’s CAC 40 (FR40) fell by 0.27%, Spain’s IBEX 35 (ES35) lost 0.84%, Britain’s FTSE 100 (UK100) closed down by 0.52%.

Based on a model of the European energy market and economy, Bloomberg Economics offers a baseline scenario of Eurozone GDP falling 1%, with the decline starting in Q4. If the coming months turn out to be particularly cold and countries fail to allocate scarce fuel supplies efficiently, the decline could be as much as 5%. Another study (BloombergNEF) shows that Europe is ready for a winter without Russian gas. Europe’s rush to buy LNG means that Europe will likely have enough fuel for power generation this winter to offset supplies from Russia. The region could import nearly 40% more LNG this coming winter than last year, and next summer, it could increase purchases by about 14% to recover lost supplies.

According to analysts, the most important signal to calm the markets now may come from the United Kingdom. The Bank of England may raise the rate sharply by 125-150 bps at an emergency meeting. However, the problem with a sharp increase by the Bank of England is that markets may perceive such action as a sign of desperation and aggravation of Britain’s perceived financial problems. Given that the government’s energy and budget plans have caused the market to collapse further, the authorities must back up any action by the Bank of England with a fiscal response. This could mean a partial reversal of the measures the new Liz Truss-led government has just put at the center of its economic reform strategy.

The Baltic Pipe gas pipeline, which connects Polish territory with the Norwegian offshore via Denmark, was launched at a ceremony in Poland. At the same time, both strings of the Nord Stream pipeline experienced a drastic drop in pressure. The German government is not ruling out that the pressure drop could have been caused by deliberate sabotage aimed at creating uncertainty in the European gas markets. The Danish prime minister said sabotage could not be ruled out. “We are talking about three leaks with some distance between them, so it is difficult to imagine that it is a coincidence.” None of the pipelines were delivering gas to Europe when the leaks were discovered, but the incidents would dash any remaining hopes that Europe could get gas through Nord Stream 1 before winter arrives. Gas prices in Europe jumped by 9% percent after the news.

Oil prices rose slightly yesterday as investors raised their bets on oil supply disruptions as Hurricane Ian is expected to hit Florida on Wednesday.

Chinese authorities will continue to actively buy goods from other countries, including oil and gas from Russia, China’s deputy commerce minister said.

Asian markets traded higher yesterday. Japan’s Nikkei 225 (JP225) gained 0.53%, Hong Kong’s Hang Seng (HK50) gained 0.03% for the day, and Australia’s S&P/ASX 200 (AU200) was up by 0.41% on Tuesday.

Independent research shows that deflation risks in China are rising amid the real estate crisis. Companies are reporting the weakest price growth since late 2020. Winter lockdowns may intensify deflation fears. The World Bank worsened China’s GDP growth forecast for 2022 and 2023 due to the real estate crisis and the country’s authorities’ tough policies to curb the spread of COVID-19. According to the new forecast, China’s GDP will increase by 2.8% in 2022 and by 4.5% next year.

S&P 500 (F) (US500) 3,647.29  −7.75 (−0.21%)

Dow Jones (US30) 29,134.99 −125.82 (−0.43%)

DAX (DE40) 12,139.68 −88.24 (−0.72%)

FTSE 100 (UK100) 6,984.59 −36.36 (−0.52%)

USD Index 114.11 +0.01 (0.00%)

• – Japan Monetary Policy Meeting Minutes (m/m) at 02:50 (GMT+3);
• – Australia Retail Sales (m/m) at 04:30 (GMT+3);
• – Eurozone ECB President Lagarde Speaks at 10:15 (GMT+3);
• – US Pending Home Sales (m/m) at 17:00 (GMT+3);
• – US FOMC Member Bullard Speaks at 17:10 (GMT+3);
• – US Fed Chair Powell Speaks at 17:15 (GMT+3);
• – US Crude Oil Reserves (w/w) at 17:30 (GMT+3);
• – US FOMC Member Bowman Speaks at 18:00 (GMT+3).

By JustForex

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.