A Sinking Feeling Hits Indices Around The World Over Worries About Recession

Published on
  • Wall Street in the red, with the S&P 500 falling 3.2% and NASDAQ down 4%.
  • Investors nervous about recession threat given super-hot inflation.
  • FTSE 100 opened up briefly before reversing
  • Brent Crude still hovers around $120, around 50% higher since the start of the year.
  • Covid horror story not yet over as smaller Chinese lockdowns continue.

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Q1 2022 hedge fund letters, conferences and more

The Economic Pit Of Recession

"There is unlikely to be sustained relief from the sinking feeling that has hit financial markets this week, as worries rise that countries around the world won’t avoid falling into the economic pit of recession. After the initial boost of optimism that the Federal Reserve was going to get a handle on inflation with the 0.75% rate rise, the mood soured on Wall Street as concerns mounted that the price spiral was going to be an even harder nut to crack, without fresh aggressive hikes.

A flurry of rate rises around the world in Taiwan, Switzerland, Hungary and the UK prompted fresh uneasy sentiment, particularly the warning from the Bank of England that inflation is set to soar to 11% this Autumn. The book hasn’t yet closed on the Covid horror story which could still have some sorry tales to tell for the global economy. China is still imposing lockdowns on districts to curtail the spread of the virus and companies are bracing for fresh supply chain issues. With threats to global growth increasing, the oil price dipped slightly but Brent Crude is now back above $120 dollars as supply issues linger. A lower oil price induced by a sharp global slowdown would certainly help bring down red hot consumer prices, but there is a very long way to go, given that crude is still 50% higher than it was a the start of the year.

The S&P 500 sank more than 3% as traders assessed the increasingly gloomy outlook for the global economy and tech stocks were subject to even more of a battering, with the NASDAQ down 4%. Other indices around the world mainly followed the downbeat sentiment with the Nikkei falling 1.7% and Australia’s ASX 200 down 1.7%. The Bank of Japan’s decision to keep to its ultra-loose monetary policy is at odds with its global peers but shows the concern it has about the country’s very sluggish recovery from the pandemic.

There were hopes for some respite for European indices but the FTSE 100 dipped back into the red after opening slightly higher. The knot of worry about the tricky economic times ahead isn’t likely to go away any time soon. Sterling is falling back again against the dollar after rising from its dip to below $1.20 hit this week. It’s still trading around two year lows at $1.22, as worries about the fragility of the UK economy, combined with political uncertainty hover."

Article by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown

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