Rising consumer sentiment eased recession fears

December 22, 2022

In the United States, the Conference Board consumer confidence indicator jumped to 108.3 from 101.4, beating economists’ forecast of 101.0. Data showing strong consumer sentiment, a key gauge of consumer spending that drives economic growth, eased fears of a recession, leading stock indices to rise. As the stock market closed, the Dow Jones Index (US30) increased by 1.60%, and the S&P 500 Index (US500) added 1.49%. The Technology Index NASDAQ (US100) closed up by 1.54%.

The improvement in both the current and expectations indices can be attributed to a favorable consumer outlook on the economy and jobs, while inflation expectations reached their lowest level since September 2021. Housing data, on the other hand, did not make investors happy. Existing home sales fell by 7.7% over the past month, indicating serious problems in the real estate sector.

FedEx Corporation (FDX) reported better-than-expected quarterly results and announced plans to cut spending by another $1 billion.

Canadian retail sales were down 0.5% in November. Statistics Canada has indicated that this is a preliminary estimate that may be subject to revision. Also, in Canada, new inflation data was released yesterday. The report showed that year-over-year consumer prices fell from 6.9% to 6.8%, while core inflation (which excludes food and energy prices) remained at 5.8% y/y. The concern for the Bank of Canada continues to be rising food prices, indicating that inflation is taking root, with core inflation remaining well above the target. The Bank of Canada and the US Federal Reserve are set for some policy divergence. The Fed intends to continue raising rates through 2023, while the Bank of Canada has given a more dovish outlook, citing fears of a recession.

Equity markets in Europe mostly rose yesterday. Germany’s DAX (DE30) gained 1.54%, France’s CAC 40 (FR40) jumped by 2.01%, Spain’s IBEX 35 (ES35) added 1.43%, Britain’s FTSE 100 (UK100) closed by 1.72% higher on Wednesday.

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ECB spokesman Centeno said yesterday that the central bank expects Eurozone inflation to peak in the fourth quarter of 2022.

In the UK, according to the latest CBI monthly distribution survey, retailers reported an unexpected rebound in sales growth. The UK government’s decision to freeze business rates starting in April gave welcome relief to the retail sector. But retailers also need to see long-term sustainable growth measures from the government to spur investment and address ongoing labor shortages. Firms are not expecting much of a New Year’s mood, as they plan for sales to decline again after the New Year holidays.

Crude oil prices rose for the third straight day as China, the largest oil importer, continues to loosen measures. Oil prices also rose after US crude inventories fell three times last week as demand for the fuel increased due to more travel as well as holiday parcel delivery activity by truckers. US West Texas Intermediate (WTI) crude for February delivery rose by 2.7% to $78.29 a barrel. Brent Crude oil (BRENT) of British origin for February delivery rose by 2.8% to $82.20 per barrel.

The impact of sanctions on Russian crude oil remains a very important issue that still needs to be fully resolved. The EU and their G7 partners have imposed a ban on Russian crude oil since December 5, 2022. This means that the UK will ban the import, purchase, supply, and delivery of Russian oil and oil products to the UK. This ban will potentially hit the price of British Brent Crude and possibly make it more expensive in the long term due to the lack of supply.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.68%, China’s FTSE China A50 (CHA50) increased by 0.50%, Hong Kong’s Hang Seng (HK50) added 0.34%, India’s NIFTY 50 (IND50) lost 1.01%, and Australia’s S&P/ASX 200 (AU200) was up 1.29% by the end of Wednesday.

Interest rate hikes in the US and other advanced economies have weighed heavily on Asian currencies this year as the gap between risky and low-risk debt narrowed. While the Bank of Japan’s decision brought some relief to regional currencies this week, it also signaled that Japan’s central bank is likely to tighten policy next year.

S&P 500 (F) (US500) 3,878.44 +56.82 (+1.49%)

Dow Jones (US30) 33,376.48 +526.74 (+1.60%)

DAX (DE40) 14,097.82 +213.16 (+1.54%)

FTSE 100 (UK100) 7,497.32 +126.70 (+1.72%)

USD Index 104.20 +0.24 (+0.23%)

Important events for today:

– UK GDP (q/q) at 09:00 (GMT+2);
– US GDP (q/q) at 15:30 (GMT+2);
– US Initial Jobless Claims (w/w) at 15:30 (GMT+2);
– US Natural Gas Storage (w/w) at 17:30 (GMT+2).

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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Rising consumer sentiment eased recession fears