Better-than-expected US retail sales didn’t please investors yesterday, as it fueled, again, inflation expectations. Higher inflation expectations fueled the hawkish Federal Reserve (Fed) expectations. And hawkish Fed expectations fueled recession worries – without however Fed being there to disperse cheap money.
US indices gave back gains yesterday. The S&P500 slid 0.83% and Nasdaq fell 1.54%.
Sour earnings from Target, which highlighted that nice-to-have stuff like clothes and electronics didn’t sell well in the latest quarter, because of rising prices, didn’t help lift the investor mood.
JP Morgan economists said they expect the US to enter a mild recession next year because of the rising rates and the tightening monetary conditions. And again, because recession will be triggered by higher rates and QT, the Fed won’t be a shoulder to cry on for investors.
Prospect of slower global economy, along with the de-escalation of geopolitical tensions on news that the rockets that hit Poland this week were from the Ukrainian defense, and probably landed in Poland by accident, pulled oil prices lower yesterday.
The barrel of American crude slid below $85 despite a more-than-5-mio decline in US crude inventories. The price is below the summer triangle, and sitting near the bottom of the long-term ascending trendline. While slower global growth, and recession are arguments that could push oil prices under the bus, oil bulls still have the tight supply, uncooperative OPEC for lower prices, and the Chinese reopening jokers in their hands. Therefore, further weakness into the $80/82 should meet a solid dip-buying interest.
Ugly news for Brits?
Inflation in Britain rose past the 11% mark last month. The Office of National Statistics said that inflation would have been nearly 14% if government actions to limit the energy bills hadn’t been there.
But the government won’t continue spending money to make things easier for Brits moving forward. Today, the much-expected budget announcement will finally hit the fan.
And it won’t be pretty.
The UK braces for ‘austerity in steroids’ wrote Bloomberg, reminding that Sunak government must fill in a £55 billion hole by increasing taxes and cutting spending.
For investors, though, austerity means a more stable budget, less negative pressure on the sovereign bonds, and an ideally stronger British pound.
Cable consolidates near the 1.19 mark this morning. Maybe we won’t see a kneejerk positive reaction right away, because politicians tend to overpromise and underdeliver. But in all cases, we are confident that the budget announcement under Sunak won’t trigger the same chaos as under Liz Truss.
