Global Markets Extend Weekly Losses On Recession and Inflation Worries

Barry Adams
16 Sep, 2022
New York City

Stocks on Wall Street extended weekly losses after the bellwether transportation index declined adding to the list of investor worries. 

Nervous investors sold after FedEx withdrew its annual earnings guidance and cited weakening demand for shipments in Asia and delivery difficulties in Europe.

The FedEx earnings and warning on the economy sparked a wave of global selloff after the World Bank also forecasted the arrivals of recession in 2023.  

The FedEx earnings warning stoked anxieties of more warnings to follow from other transportation, logistics and retail companies. 

The World Bank in its latest report said that the global economic slowdown is accelerating at the fastest pace since the early seventies and several recession indicators are flashing warning signals. 

The multilateral bank also said that the global economy is likely to sink into a recession in 2023 as central banks around the world lift interest rates to tame inflation. 

In addition, the U.S. dominated institution also cited that despite the higher interest rates, inflation is likely to stay elevated on the persistent supply chain problems. 

The S&P 500 index declined 0.7% to 3,873.33 and the Nasdaq Composite index dropped 0.9% to 11,448.40. 

For the week, the S&P 500 index declined 4.2% and the Nasdaq Composite index dropped 5.2%. 

All eleven sectors logged losses after investors were rattled by an earnings warning from FedEx, another dive in energy prices and bond yields trading near 15-year highs. 

Exxon Mobil, Chevron, Schlumberger, Hess Corp and Marathon Oil dropped between 2% and 5%. 

Of the eleven sectors only consumer staples and real estate sectors closed up marginally, at close. 

 

Can We Tame Inflation and Avert a Recession?

Investors are increasingly accepting the scenario that high inflation can not be tackled without the high interest rates and the longer the Fed takes in lifting rates to or above 5% the longer the economic slowdown or even a recession will last.  

Crude Oil futures increased 33 cents to $85.38 and natural gas fell to 52 cents to $7.79 a thermal unit.

 

Bond Yields Advance Ahead of Fed Meeting Next Week 

The bond yields continue to trade higher with 2-year Treasury notes trading near 15-year high and ahead of 30-year Treasury bonds indicating that the bond market is forecasting a recession or an economic slowdown in the coming quarters. 

The yield on 2-year Treasury notes hovered near 3.89%, 10-year notes traded at 3.46% and 30-year bonds  at 3.52%. 

 

European Markets Head Lower

Benchmark indexes in Europe extended losses and bond yields rose on the persistent worries of economic slowdown and deepening energy crisis. 

The DAX index fell 1.3% to 12,788.31, the CAC-40 index dropped 0.9% to 6,104.77 and the FTSE 100 index fell 0.3% to 7,259.25. 

For the week, the DAX fell 2.7%, the CAC-40 declined 2.3%, and the FTSE 100 index dropped 1.7%. 

The euro edged up 0.2% to $1,0007 as investors brace for higher rates in the U.S. next week. 

 

Pound at 37-year Low 

The U.K. pound declined to a 37-year low of $1.14 as latest economic data point to economic slowdown and weakening activities. 

Retail sales in the U.K. dropped 1.6% on a monthly basis in August, the largest monthly decline so far in the year after a 0.4% rise in July, the Office for National Statistics reported Friday. 

 

Eurozone August Inflation Reaffirmed 

The Eurozone inflation was unrevised in the final estimate at 9.1% in August according to the Eurostat report released on Friday.

The inflation[s previous estimate was released on August 31 and the rate accelerated from 8.9% in July.  

 

 

Russia Cuts Rate Again 

The Central Bank of Russia lowered its key lending rate by 50 basis points to 7.5%, matching the expectations. 

The central bank lowered the rate for the sixth time in a row but guided 2022 inflation to range between 11.0% and 13.0% before cooling down to between 5.0% and 7.0% in 2023.