Concern is growing over a worsening danger of recession on European equity markets. The readings on SMEs in France, Spain, Germany, Italy, the EU and the United Kingdom, down but higher than expected, have not helped to reverse a trend that has sharpened in recent weeks. They weren’t enough. The reading of SMEs on services highlighted an economic slowdown, although lower than expected and above all still in expansion territory.
There is a mix between the supply shock and a demand boost. In Europe, the unemployment rate has fallen. What happens is that we have had two shocks, first the Covid we are coming out of, and then a new war in Ukraine. Several countries are suffering from oil and food shortages and the closure of monetary policy in the United States. What will happen is a shift, globally, with regions moving at different speeds.
Europe suffers the most from fears, with the EurUsd exchange rate, which fell below 1.03, on values not seen for over 20 years. The new concerns of an economic slowdown and above all the greater pressures on energy costs could cause the ECB to revise the rate hike policy, thus accentuating the yield differential with the American one.
From a technical point of view, the picture remains weak for the Euro / Dollar pair, with a bearish trend that remains strong both on a daily and, above all, weekly basis. The eventual break of the bearish channel, at which the Eur / Usd pair has been trading since June, could exacerbate sales with the risk of even a parity test. The evolution could find more clues on today’s FOMC and NonFarm Payroll readings, expected for Friday.
The concern of a slowdown in America shows its signs on the credit spread, which is expanding considerably, as well as on the spread between the ten-year and two-year Treasury yields – back in negative territory – as well as on the three-month yield, which marks a -10% despite the latter is still far from the concerns of a reversal, trading at 1.101%.
Furthermore, the Fed’s forecasts show that GDP in the second quarter is expected to adjust by 2.1%. A situation that, if confirmed, would bring the US economy into a technical recession, with two consecutive quarters of contraction, increasing investor concerns. However, it is interesting to note that, despite growing concerns about a market recession, the Growth sector recorded an appreciation of 1.1% yesterday (IWF / SPY).
The difference between the ECB and the American Federal Reserve is leading to an appreciation of the dollar on a global basis, which implies an increase in inflation in countries such as the European ones that import in dollars, for energy and raw materials. The ECB did well to wait. Now, however, it is reasonable to expect a response in the sense of a prudent exit from expansionary policies and to absorb the costs of inflation. There is disagreement between the EU countries on how to do it. European gas does not stop the growth of prices, which rose yesterday even above 170 euros Mwh. The latest news with the Equinor company that has initiated the closure of three oil and gas fields due to strikes by its workers has increased the bullish pressures. Effects of inflation that have repercussions on the labor market, not on the feared inflationary spiral generated by wage increases, but on social tensions with more and more sectors that have decided to strike. For oil, prices are slightly lower, both Brent and WTI, on the back of fears that a global recession could damage energy demand. Corrections to the oil market which generates at least one relief valve on inflationary pressures, with the price of WTI oil returning to trading below the psychological threshold of $ 100 / b. Citibank said oil prices could plummet to as much as $ 65 a barrel by the end of the year if an increasingly likely recession hits the global economy.
Growing signs that the world economy is entering a synchronized growth slowdown, which means countries can no longer rely on an export rebound for growth, have also prompted us to predict multiple recessions. Bitcoin, like all other cryptocurrencies, may face the consequences of a very near recession. Not only the United States, but also the United Kingdom and Europe will be the protagonists. This could affect digital asset prices.
