Macro-economy news

July 4, 2022

Less growth in the US, more inflation in Europe and still the Covid in China

Spectacular decline in bond yields: the US 10-year ended the week at 2.88%. It was at 3.47% in mid-June. The German Bund fell from 1.76% to 1.22% in 10 days. The markets are totally focused on the effects of monetary policy tightening and signs of economic slowdown. The dollar continues to…
July 1, 2022

Equity markets down 20-30% in H1

For the first time since the beginning of the year, US consumer spending contracted in real terms (deflated for inflation) in May, amplifying recession fears and the downward correction in equity markets. Overall, the S&P 500 fell by 20.8% in the first half of the year, the Nasdaq by 30% and in Europe, the…
June 30, 2022

All against inflation!

The statements of the central bankers meeting in Sintra, from the ECB or the Fed, are unambiguous: the priority is the fight against inflation. They are generally confident that a recession should be avoided, but warn that signs of economic slowdown do not distract them from their main short-term objective. Against…
June 29, 2022

There is renewed concern

The US equity markets fell again yesterday, this time more sharply (-2% for the S&P 500 and -3% for the Nasdaq). The sharp decline in the Conference Board’s consumer confidence index is not unrelated to this: it confirms the signs of a downturn in the US labour market already highlighted by the…
June 28, 2022

Without conviction

US equity markets fell back yesterday as interest rates rose to above 3.2% for the US 10 year. Market participants appear unconvinced as we approach the end of the month, with recession fears pitted against inflation fears to determine what central bank policy will be. US durable goods orders rose again…
June 27, 2022

Downward revisions in expectations of monetary tightening

The rebound in risky assets that began on Thursday after the publication of sharply lower PMIs was amplified on Friday after the revised figures from the University of Michigan’s consumer survey showed a drop in inflation expectations. The S&P 500 was up 3.1% and the Euro Stoxx 50 2.8%. The EUR/USD exchange…
June 24, 2022

Germany triggers the second stage of its national gas emergency plan

Risks of energy shortages came back to the fore on Thursday after Germany triggered the second step of its emergency gas plan with the German economy minister Robert Habeck warning of a potential “Lehman Brother effect” in the energy sector in case of a full cut in Russian gas supply.…
June 23, 2022

Euro Zone consumer confidence plunges to multi-year lows

The release of Consumer confidence data for June-22 in the Euro Zone showed that the index plunged to a new multi-year low at -23.6 (see below chart), much lower than expected by market players as households are facing soaring energy and food prices and economists warn about the heightened risk…
June 22, 2022

A dead cat bounce?

US equity markets bounced back on Tuesday, reversing some of the sharp losses recorded last week on the back of an historical 75 bp interest rate increase from the Fed to fight the highest inflation rate in four decades. But Asian equity markets did not follow the rebound overnight as…
June 21, 2022

Brief respite for financial markets ahead of a raft of economic data

Equity markets in Europe and Asia showed a brief respite for on Monday after a week of sharp losses on the back of growing recession concerns. The impact of the French legislative election results, leading to a period of political uncertainty in the second economy of the Euro zone, which…
June 20, 2022

Recession fears continue to weigh on financial markets

Recession concerns amid surging inflation rates and a sharp acceleration of monetary tightening across the globe continued to weigh on financial markets at the end of last week. Overall, US stocks have suffered their heaviest weekly fall since the outbreak of the coronavirus pandemic last week. Nothing special in the…
June 17, 2022

On second thought…

The markets, which had welcomed the Fed’s 75bp rate hike, finally revised their judgement significantly afterwards. Concerns about growth took over, leading to a sharp drop in equity markets (-4% for the Nasdaq, -3.25% for the S&P 500, -3% for the Euro Stoxx 50) and a sharp decline in long-term rates as…
June 16, 2022

Positive market reaction to Fed and ECB meetings

The Fed predictably raised its key rate by 75bp and warned that it could raise it again on a scale not seen since 1994 in July, but that it believed such action should be exceptional. Its growth and inflation forecasts were revised downwards and upwards respectively, but not excessively so,…
May 24, 2022

Strong rise in the EUR/USD exchange rate

It seems that as soon as Mrs Lagarde speaks, the euro rises. This was the case yesterday and it is happening again this morning after an interview with Bloomberg. The EUR/USD exchange rate rose from 1.0550 to over 1.07. What did she say? That the ECB would probably raise its key…
May 23, 2022

Oil stable: no major news changes traders’ views

Mixed news from China: Covid cases in Beijing are back to a record high… at 99. The number seems ridiculously low, but the trend is worrying, especially in the context of the “zero cases” policy. But on the other hand, the President seemed to open the door to at least…
May 20, 2022

Lower credit rates in China

The yo-yoing continues on the markets: after a new decline in the equity markets yesterday and a sharp drop in long term rates (10 years US at 2.86% this morning), the trend was strongly reversed in Asia after Chinese banks lowered by 15bp the 5-year credit rate from 4.6% to 4.45%.…
May 19, 2022

Violent downward correction of the equity markets

US equity markets lost around 4% yesterday. The trend remained very negative in Asia, especially since Sri Lanka defaulted on its debt, which clearly raises the question of possible contagion to other low-income emerging countries, hit by both the downward pressure exerted by the Fed’s monetary tightening on their currencies and by…
May 18, 2022

Sharp rise in interest rates and fall in the US dollar

Almost all the activity indicators published yesterday surprised on the upside, which supported risky assets and caused a sharp decline in the US dollar, in the wake, let us recall, of good news from China. But they also reinforced expectations of monetary tightening and led to a rise in bond…
May 17, 2022

Markets anticipate the recovery of activity in China

Three days without a new case of Covid in Shanghai. According to the rules established by the local authorities, this should open the way to a gradual lifting of the restrictive measures imposed for weeks and thus to a resumption of activity. As we suspected yesterday, the markets were not…
May 13, 2022

Industrial activity plunged in March in the euro area

Financial markets were still dominated by pessimism yesterday, as evidenced by the sharp rise in the US dollar, with the exchange rate against the euro plunging to 1.0354, close to the January 2017 low. The trend seems to have reversed with a new interview with the Fed Chairman. It seems to be…
May 12, 2022

US inflation slows less than expected, reinforcing recession fears

The US inflation rate did fall in April, but only from 8.5% to 8.3%. The core inflation rate fell from 6.5% to 6.2%. In detail, the sharp acceleration in many service prices, aerospace prices and rents shows that the Fed will not be able to rely on this decline in inflation…
May 11, 2022

Has peak inflation been reached in the US?

Growth concerns continue to drive the markets: after a strong rebound, the US equity indices almost all ended lower yesterday, but a final surge saw the S&P and Nasdaq rise slightly, but not the Dow Jones. The US 10-year yield fell back below 3% and the USD strengthened a little,…
May 10, 2022

The decline in equity markets continues

The equity markets fell sharply again yesterday, particularly US technology stocks (Nasdaq), which dropped another 4.3%. They are down 10% since the Fed’s decision to raise its key rate by 50bp last week (see the last Macro & Oil Weekly Report) and 26% since the beginning of the year. Futures turned around…
May 9, 2022

Markets still driven by stagflation fears

The April US jobs report was good with 428k new jobs and a slight slowdown in wages, but this did not stop long rates from continuing to rise (US 10y at 3.13%) and equities from falling, with the US indices recording their 5th consecutive weekly decline, something that has not happened for 11…
May 6, 2022

Violent relapse of the equity markets

Yesterday we stressed how fragile we thought the very positive reaction of the US equity markets to the Fed’s 50bp rate hike was in the current context. It did not take long for the correction to occur, and it was extremely violent, with the Nasdaq in particular falling by 5%. Long-term…
May 5, 2022

The risk of stagflation is more relevant than ever

The reaction of the markets to the Fed’s announcements yesterday says a lot about the extreme nature of their expectations: the Fed increased its Fed funds rate by 50bp and its chairman announced that it would most probably repeat this operation in June and then in July, knowing that it…
May 4, 2022

Fed day

Unemployment data released for the Euro Area yesterday showed a continuous improvement of the job market with a new record low at 6.8% in March 2022 (see chart), compared to 6.9% in February 2022. This could provide further upward pressure on wages on the back of another surge in Euro zone producer prices…
May 3, 2022

US 10-year treasury rate hits the 3% mark

The yield on the US 10-year treasury bond hit the 3% mark for the first time since late 2018 ahead of the Fed meeting planned today and tomorrow to raise interest rates further (probably by 50 basis points) to combat soaring inflation and slowing growth. In the UK, the BoE is also…
May 2, 2022

More clouds on the growth horizon

Concerns over the ongoing economic slowdown are growing among financial markets. In the US, the Nasdaq index plunged on Friday by more than 4% on the back of concerns about rising interest rates and softer business updates from tech giants (notably Amazon). It finally recorded its sharpest monthly drop since October 2008 in…
April 29, 2022

Growth falters

Surprising contraction of the US GDP in Q1 (-1.4% qoq annualised): as expected, inventories contributed negatively to growth, as did public spending, but it was above all foreign trade that weighed on growth, with a very sharp rise in imports (+17.7%) and a decline in exports (-5.9%). But the core of…
April 28, 2022

USD is stronger, many economic reports incoming

EUR continued to fall against USD yesterday, and reached 1.0501 a 5-year low. After a brief rebound the pair is again trading lower this morning. This results from the looming recession in Europe due to the war in Ukraine and from the hawkish policy the Fed is planning to follow.…
April 27, 2022

Euro at 5-year low against USD

1.0616 at the time of writing, possibly lower by the time of publication. The EUR/USD exchange rate has sunk below its 2020 lows. You have to go back to 2017 to find a lower level. The 2 main reasons are known: 1) the rise of risk aversion which resulted in a violent downward correction…
April 26, 2022

China entangled in the management of the pandemic

The People Bank of China promises to support the Chinese economy through a variety of measures, including easing credit conditions for small businesses, lowering the reserve ratio for banks’ foreign currency holdings, or ending regulatory action against technology companies. But lower rates are hampered by the need to clean up the housing sector…
April 22, 2022

Fed’s chairman cements an aggressive monetary tightening

Jay Powell, the US central bank head, declared at a panel hosted by the IMF yesterday that a 50 basis points interest rate hike was on the table of the next Fed meeting early May, confirming the shift in tone among Fed’s governors over the past few weeks towards a more aggressive…
April 21, 2022

No clear direction for financial markets

The markets are hesitant, with no clear direction. The EUR/USD exchange rate has risen sharply to 1.09 after statements by ECB members raising the possibility of a rate hike as early as July and the possibility of positive rates before the end of the year, which would imply 3 rate hikes of…
April 20, 2022

Sharp downward revision of the IMF economic growth forecast

The International Monetary Fund cut its global growth forecast yesterday to 3.6% in 2022 and 2023, down from an estimated 6.1% in 2021. This is 0.8 and 0.2 percentage points lower for 2022 and 2023 than projected in January, with a deep recession in Russia and a significant slowdown in…
April 19, 2022

China’s Q1-22 GDP beat expectations but the global outlook remains bleak

Ukrainian President Zelensky declared that the widely awaited Russian offensive in the Donbass region started yesterday after most Russian troops and artillery moved from the west of Ukraine late March. This could continue to weigh on the global economic outlook and support a strengthening of EU sanctions against Russia, with a ban…
April 15, 2022

Unchanged monetary policy in Europe

No significant development to extract from the ECB meeting held yesterday as its bond buying program is expected to end on the third quarter while the institution did not deliver a precise schedule for an interest rate hike. “Any adjustments to the key ECB interest rates will take place some time after…
April 14, 2022

Easing monetary policy in sight in China

The release of the US CPI figures showed a further acceleration in the inflation rate in March 2022 at 8.5% yoy, which was the largest year-on-year gain since December 1981. Surging gasoline prices were the main contributor of this sharp increase, but food and services also made strong contributions. A 50…
April 12, 2022

US inflation rate hit a new 40-year high

The release of the US CPI figures showed a further acceleration in the inflation rate in March 2022 at 8.5% yoy, which was the largest year-on-year gain since December 1981. Surging gasoline prices were the main contributor of this sharp increase, but food and services also made strong contributions. A 50…
April 11, 2022

Macron-Le Pen in French presidential run-off as expected

Results of the first round of the French presidential election led to the expected duel between President Macron and the far-right candidate Marine Le Pen. First run-off polls show that President Macron could win a second mandate on April 24 but with a much tighter margin compared to five years ago and…
April 8, 2022

Markets heading for the French presidential election

We are currently facing an IT issue. Our team is working on it. We apologize for the inconvenience. Financial markets continued to digest the massive Fed’s balance sheet reduction expected from next month on Thursday, with the US 10-year bond rate increasing further to 2.66% this morning. Global equity markets are…
April 7, 2022

Massive Fed balance sheet reduction in sight

The FOMC Meeting Minutes unveiled details over a significant balance sheet reduction set to start as soon as next month with bond sales up to $95bn per month to cool the hottest inflation in four decades. The market impact was relatively limited as the US 10-y treasury yield briefly jumped to…
April 6, 2022

US Fed ready to take “stronger” actions to bring inflation down

The widely awaited intervention of Lael Brainard, member of the Fed’s Board of Governors, gave clear indications on the acceleration of the monetary tightening expected in the coming months to bring inflation down in the US (where it reached 7.9% yoy in Feb-22). A series of higher-than-expected interest rate hikes (up…
April 5, 2022

Global stocks shrug off potential escalation of sanctions

Threats of new economic sanctions against Russia over its action in Ukraine were offset by an increase in tech stocks on Monday on reports that Elon Musk bought a 9% share in Twitter. Bond yields shed some of their recent increment with Germany’s 10-y Bund down to 0.52% yesterday from…
April 4, 2022

Interest rates surge after US jobs report

2-year yields rose by 10bps in the US after the release of a report showing 431k new jobs created in March and a sharp rebound in hourly wages to +5.6% yoy. Yields on longer maturity Treasuries are also rising, but at a much slower pace, resulting in an inversion of the…
April 1, 2022

Inflation is expected around 7% in the euro area

The equity markets have been on the decline for the past two days. Confidence in a quick peace in Ukraine has frankly and logically declined. The vagueness surrounding the payment of Russian gas sales to European countries also raises the threat of an interruption of flows, even if no one really…
March 31, 2022

Decline of activity in China

The price of Brent 1st-nearby, which had risen to almost $115/b yesterday, has since fallen back below $110/b, after even falling below $108/b. Yesterday’s rebound was due to a decline in optimism about the possibility of a ceasefire in Ukraine. Three factors contributed to the decline. First, the news that the Biden Administration…
March 30, 2022

Hopes for peace but what about sanctions?

Markets reacted strongly yesterday to Russia’s announcement of a significant reduction in military activity in the Kiev region. Many saw this as confirmation of progress in the negotiations and hopes of a ceasefire or even a lasting peace were boosted. European equity markets have now fully recovered their losses since the…

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