Rising recession fears see markets settle

  • Equity markets were mixed this week with bad economic news back to being good news for equity markets.
  • In local stock news, Australia’s biggest building materials manufacturers are cutting back operations, hiking prices, and considering moving production offshore to manage a spike in power and gas bills, adding pressure on the government to resolve the country’s energy All about the base load, which can only be solved by coal, LNG, or nuclear.
MARKETS
  • Iron ore stock prices fell after the iron price tumbled below US$130 a ton with Chinese steel mills reducing output given deteriorating demand prospects.
  • Oil prices fell this week as weaker economic news hit home and with US President Biden getting desperate and creative on how to bring down fuel prices for Americans.
ECONOMICS
  • Australian Reserve Bank governor Lowe told business leaders the cash rate was unlikely to hit 4% by year-end as market pricing has been suggesting, and that he didn’t see recession on the horizon.
  • A US leading economic indicator turned down in May, in line with expectations, suggesting weaker economic activity in the period ahead.
  • A key US manufacturing data point fell sharply in May, coming in below expectations, and pointing to the slowest growth in factory activity for almost 2 years as contractions in output and new orders weighed.
  • A US central bank representative said the risk of a recession is increasing and that it will take several years to return to the central bank’s 2% inflation goal, whilst chairman Powell warned that a US recession is a possibility and that it will be very challenging to achieve a soft landing as he confirmed that the bank was strongly committed to returning inflation to their objective.
  • European central bank president Christine Lagarde told Euro area finance ministers of the banks plans to limit government bond spreads. That means more money printing.
  • UK consumer price inflation rose to 1% in May, from 9% in April, to the highest level since 1982. The headline number was mixed with core prices softening and producer prices rising.
  • The Bank of Japan doubled-down on its efforts to keep the Japanese 10 year bond yield at 0.25% announcing it was maintaining its ultra-easy monetary stance.
  • Chinese banks kept their main lending rates unchanged following the central bank’s decision to put policy rate cuts on hold as the economy starts to gradually recover from lockdowns.
POLITICS
  • Germany has restarted its coal-fired power stations in order to guarantee the security of energy supplies, after Russia cut gas flows to its biggest customer by 60% last week. Base load power is critical to any energy framework, something which renewables cannot currently provide.
  • Russia has ramped up the use of natural gas as a weapon in its war against sanctions, cutting gas supplies to France entirely and reducing supplies to Italy, its 2nd largest European customer. The moves come as the EU gave its tentative approval to give Ukraine candidate status.
  • US President Biden said a US recession isn’t inevitable and acknowledged that aides warned him about the inflationary risk of his profligate spending since taking office.
  • Chinese President Xi reiterated his commitment to meet China’s 5% economic growth target this year amid mounting macroeconomic headwinds.
  • French President Macron lost control of the national assembly, failing to achieve a majority, and forcing his party to negotiate alliances with other parties. A broad left- wing alliance is likely to be the biggest opposition group whilst the far-right scored record high-wins with a ten-fold increase in Likely Macron’s party forms an alliance with the conservatives. France hasn’t had a hung election since 1988.
  • Columbian elections have seen a former guerrilla take power who wants to transform the country’s business-friendly economic model with a radical far-left agenda setting the scene for a drastic change of course for the country.