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Daily Wrap Up 23 June 2022

23 Jun 2022 04:59 PM

Growth fears hurts Europe

European stock markets are suffering as there are fears the continent is going down a gear in terms of growth. The flash readings of manufacturing and services in the eurozone were disappointing as the manufacturing update showed the slowest level of growth in 22 months, and the services report slipped to a five-month low. The UK services and manufacturing reports were mediocre so that also contributed to the view the wider region is slowing. It is concerning that inflation is on the rise at a time when economic activity is fading, it is possible the rise in the cost of living is already a factor in the slide in output.

CPI in the eurozone is at a record high and CPI in the UK recently reached a new 40-year high. As a reaction to the high level of inflation, the Bank of England hiked rates five times in six months, and the European Central Bank gave a strong indication they will lift rates next month. Given that services and manufacturing levels are already cooling, traders are fearful that things will get worse in the months ahead as the rise in borrowing costs will likely dampen demand even further. Speculation about a possible recession in the UK and Germany have been circulating lately and that is weighing on stock markets. The DAX and the FTSE 100 are down 1.4% and 0.7% respectively.

Over in the US it is a different story as a retreat in the US 10-year yield has sparked buying. The S&P 500 is up over 0.4%. Earlier this morning, US index futures were in the red, but they have since rebounded amid high volatility. Jerome Powell, the Fed Chair, is testifying before lawmakers in the US and the central banker said he would be “reluctant to cut rates” which indicates his determination to tackle the high level of inflation. Earlier this month, Mr Powell cautioned the risk of a recession has increased but as we heard today, he seems set on the course of higher rates.

Oil fell to a one-month low yesterday, and it rebound a little overnight, but it has turned lower again as growth fears linger. Industrial metals like silver and copper are also suffering from worries connected to global growth.

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