07 Dec

Banks are predicting a recession next year. Santa Claus rally postponed

December 7, 2022

By JustMarkets

Instead of a Santa Claus rally, the US stock indices have been under selling pressure in recent days. As the stock market closed Tuesday, the Dow Jones Index (US30) decreased by 1.03%, and the S&P 500 Index (US500) lost 1.44%. The technology Index NASDAQ (US100) was down by 2.00% yesterday. All three indices closed negative.

After strong jobs and services data in recent days, traders and investors are reassessing the risks and probabilities of how the Fed will act next and how much it will raise rates in the future. Analysts point to a 91% chance that the US central bank could raise rates by 50 basis points at its December 13-14 meeting, with rates expected to peak at 4.98% in May 2023. Concerns about lower economic growth come amid disappointing forecasts from banks such as Bank of America, J.P. Morgan, and BlackRock, which predict a recession in 2023.

The CEO of Bank of America Corp (BAC) predicted moderate negative growth for three-quarters of next year, while JPMorgan Chase (JPM) Governor Jamie Dimon said inflation would reduce consumer purchasing power and that inflation will be moderate or more pronounced. That said, there is a recession ahead of everyone. Analysts at BlackRock (BLK) believe an aggressive tightening of monetary policy by the US Federal Reserve to combat stubbornly high price increases could trigger an economic slowdown in 2023.

Shares of Meta Platforms Inc (META) fell by 6.8% yesterday after reports that European Union regulators ruled that the company should not require users to consent to personalized advertising based on their digital activity.

Stock markets in Europe were mostly down yesterday. German DAX (DE30) decreased by 0.72%, French CAC 40 (FR40) lost 0.14%, Spanish IBEX 35 (ES35) fell by 0.46%, and British FTSE 100 (UK100) closed on Tuesday down by 0.61%.

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The UK Construction Business Activity Index fell to a three-month low. Business expectations were the weakest since May 2020. Rising interest rates, higher borrowing costs, and worries about the economic outlook reduced construction activity. The UK economic outlook remains bleak, but the new government is doing everything it can to cushion the falling economy. Analysts believe that economic indicators will decline until spring-summer 2023, after which they will reach a low point and then begin a slow recovery.

The Eurozone will have revised GDP data today. Growth in the region has slowed in recent months due to high energy costs and rising interest rates, and this trend is likely to continue until the end of the first quarter of 2023. On the other hand, the imposition of a ceiling on Russian oil, which went into effect on Monday, may soon begin to show its impact on Europe’s energy market in the direction of lower prices.

Europe’s energy market in the direction of lower prices. Tuesday’s drop was the biggest daily drop in oil prices since late September. Russia has said it will not sell oil to anyone who signs up to a price ceiling. Oil markets are likely to remain volatile in the near term due to news about COVID in China and the policies of the US and European central banks.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) gained 0.24%, Hong Kong’s Hang Seng (HK50) ended the day down by 0.40%, and Australia’s S&P/ASX 200 (AU200) fell by 0.47%.

Major Chinese cities have already loosened some travel restrictions and testing requirements in the face of a pronounced economic slowdown. Data released earlier Wednesday showed that the country’s foreign trade is in its worst condition since 2020.

Bank of Japan Governor Kuroda stated that the Bank of Japan is aiming for a steady and stable inflation target of 2%, accompanied by wage growth. Japan’s largest labor union decided last week to call for a wage increase of about 5% next spring, the highest demand in 28 years. The move indicates that Japan intends to fight rising prices by regulating wage levels rather than by changing monetary policy.

Australia’s GDP grew just 0.6% in the third quarter, below the previous figure of 0.9% and below the expected 0.7%. On the one hand, this is the fourth consecutive quarter of positive growth; on the other hand, it is the weakest over the past year. Annual GDP rose by 5.9% but below the 6.2% forecast. According to RBA forecasts, GDP is expected to continue to decline through 2024.

S&P 500 (F) (US500) 3,941.26 −57.58 (−1.44%)

Dow Jones (US30) 33,596.34 −350.76 (−1.03%)

DAX (DE40) 14,343.19 −104.42 (−0.72%)

FTSE 100 (UK100) 7,521.39 −46.15 (−0.61%)

USD Index 105.58 +0.29 (+0.28%)

Important events for today:
  • – Australia GDP (q/q) at 02:30 (GMT+3);
  • – China Trade Balance (m/m) at 05:00 (GMT+3);
  • – Switzerland Unemployment Rate (m/m) at 08:45 (GMT+3);
  • – German Industrial Production (m/m) at 09:00 (GMT+3);
  • – Eurozone GDP (q/q) at 12:00 (GMT+3);
  • – Canada BoC Interest Rate Decision at 17:00 (GMT+3);
  • – Canada BoC Rate Statement at 17:00 (GMT+3);
  • – US Crude Oil Reserves (w/w) at 17:30 (GMT+3).

By JustMarkets

 

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.


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