The stock markets of Europe put an end to a month to forget. The worst part this June was taken by the markets in Milan (Ftse Mib) and Frankfurt (Dax 40), where the losses reached 13.6% and 12.2%, respectively. The outlook in the Spanish market is not much better: the Ibex 35 has dropped more than 9% compared to the end of May. Is about its worst monthly balance since March 2020. The same has happened to the EuroStoxx 50, the benchmark index on the continent, which has plummeted nearly 10% in the sixth month of 2022. This time it has not been a new coronavirus that has scared the markets, but the prospect of an early global recession. The high rates of inflation in the main economies and the ‘aggressive’ measures taken by central banks to deal with them leave many unknowns in the air in the economic outlook for the second half of the year.
European equities have already started with a clearly negative tone this Thursday. Initial sell-offs have held (and even increased) clockwise and have settled heading into the home stretch of the day, following the release of the latest US inflation data and, above all, the consumer spending benchmarks across the Atlantic.
In this way, the European stock market falls more than 2% towards the close and the EuroStoxx says goodbye to 3,500 points at the end of the month. Meanwhile, the Spanish Ibex 35 try to save the 8,000 integers, although not without many difficulties. So far this year, both indicators have fallen by more than 20% and close to 8%, respectively.
‘Drums’ of recession
The fear of a next global economic crisis marks the end of the first half of 2022 in the markets. This negative expectation has intensified over the last few weeks, with the greater forcefulness of central banks in the face of historically high inflation rates.
The last to act was the Swedish Riksbank, with a 50 basis point increase in rates today, in line with other monetary institutions. This month the US Federal Reserve (Fed) raised prices by 75 basis points, something it had not done in 28 years. And the European Central Bank (ECB) will carry out in less than a month the first increase in the price of money in the eurozone in eleven years.
“Central banks have to combat very high inflation, so they will have to further tighten their monetary policy“, Andrew Balls, director of global fixed income at Pimco, assured today in a presentation of the fund manager. This gives a 50% probability, “perhaps more”, to the risk of recession in the US and Europe, according to Eph. A vision shared by the vast majority of analysts. Just yesterday Morgan Stanley experts anticipated that the euro zone will enter a recession at the end of this year. And the list of ‘doomsayers’ continues to grow.
“The trajectory of the US economy is not looking good”
Thus, the sharp rise in prices at a practically global level continues to be a key factor for analysts and investors. This morning the consumer price index (or CPI) for June in France was released, after the same references were published yesterday in Spain and Germany, other major powers in the eurozone. The preliminary inflation rate for this month in the entire region will be known tomorrow, Friday.
But the leading role today has been taken by the index core private consumption deflator (PCE) May in the United States, the Fed’s ‘fetish’ indicator to measure inflation. This has decreased by two tenths, to 4.7%, compared to the previous month. The general PCE has stabilized at 6.3%. They are still high rates, which “justifies continuing rate hikes” in the US, explains Bankinter’s Analysis Department.
Consequently, the previous generalized losses in the stock markets of Europe have been maintained and Wall Street has also opened in negative. And it is that, despite the relief of the PCE, the decline in real consumer spending in the US in May has shown that there is a limit to the inflation that Americans are willing and able to tolerate, which has had an impact on some suffering stock markets.
“Nominal personal expenses [en EEUU] They grew just 0.2% in May and fell 0.4% after adjusting for inflation, as consumers cut back on purchases of goods and spent moderately on services. It is important to note that the downward revisions to the first quarter data point to a much weaker spending drive and indicate that consumers have drawn less on their savings than previously thought,” explains Lydia Boussour of Oxford Economics.
“It is clear that the trajectory of the US economy does not look good,” ING Economics analysts value in the heat of consumer references. “The new rises in interest rates and the continued decline in purchasing power they reduce growth forecasts and increase the risk of recession,” these experts add.
Therefore, today the good economic data known this morning in China have gone completely unnoticed, showing a reactivation of activity in the second power of the planet. There the bags, unlike in the rest of the Asian continent, have ended this Thursday with clear increases (in Shanghai of 1.1%).
Where are the bags headed?
Joan Cabrero, technical analyst and adviser at Ecotrader (the portal premium of this newspaper), does not rule out that the EuroStoxx 50 will drop to its annual lows (at 3,387 units) “and that it may even threaten to lose them” in the short term.
“The market looks set to take a non-sudden drift of laziness, but constant and extended over timeunless something unexpected and unlikely breaks it. But it is the logical and necessary thing so that during July/August the end of the adjustment in the bags takes place”, assure for their part the Bankinter experts.
Grifols rebounds while ArcelorMittal remains as the ‘red lantern’ of the month
As for the corporate level, this Thursday the increases in Grifols stood out on the Ibex 35, whose price has recovered part of the ground lost in yesterday’s crash. The company has ensured that for now there is no question of studying a capital increase.
Few other values have managed to finish today in positive. On the contrary, the holding company air IAG leads the day’s losses. And in the lower part of the table is also ArcelorMittal, which has finally been the worst title of the Ibex in the monthly balance with a loss of close to 30% since the end of May.
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